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ABN AMRO Turbos Well prepared active investing

ABN AMRO Turbos Well prepared active investing. Agenda. Recap: 15 minutes 1. What is a Turbo? 2. What are the most important characteristics of a Turbo? 3. The value of the Turbo Turbos advanced: +45 minutes 4. Adjustments to the financing- and stop loss-level

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ABN AMRO Turbos Well prepared active investing

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  1. ABN AMRO TurbosWell prepared active investing

  2. Agenda • Recap: 15 minutes • 1. What is a Turbo? • 2. What are the most important characteristics of a Turbo? • 3. The value of the Turbo • Turbos advanced: +45 minutes • 4. Adjustments to the financing- and stop loss-level • Hedging a stock portfolio • Neutralize currency fluctuations on stock portfolio

  3. 1. What is a Turbo?

  4. The ABN AMRO Turbo • The ABN AMRO Turbo is an investment product that offers investors an ability to: • Invest with a personal vision • Invest at a personal acceleration • Invest in a personal market of choice

  5. Invest with your own vision • Turbos can be aquired to benefit fromanticipated movementsin the value of an underlying: • To benefit from anticipatedincreasesin the value of an underlying, investors can buy aTurbo Long To benefit from anticipateddecreasesin the value of an underlying,investors can buy aTurbo Short

  6. 2. What are the most important characteristics of a Turbo?

  7. The most important characteristics • Financing level • The value • Leverage effect • Stop loss-level • Salvage value

  8. 3. Turbos in practice

  9. The value of a Turbo with ratio & exchange rate • The value of a Turbo can be calculated as follows: Price of underlying – Financing level Value Turbo Long = Financing level – Price of underlying Value Turbo Short =

  10. Exchange rate:Investors should take into consideration that the value of a Turbo may be influenced by fluctuations in thecurrency of denomination of the underlying, should this currency be different from that of the Turbo: Increase currency: positive impact Decrease currency: negative impact Ratio Theratio indicates how many Turbos an investor would normally have to acquire in order to be fully invested in the underlying: Ratio 0.01: EUR/USD Ratio 1: ING Ratio 10: AEX Ratio 100: CAC40 Ratio and exchange rate • In certain cases, investors should also take aratioand anexchange rateinto consideration when calculating the value of a Turbo.

  11. The value of a Turbo with ratio & exchange rate • When theratioandexchange rateare taken into consideration, the value of a Turbo can be calculated as follows: (Price of underlying – Financing level) (Ratio x Exchange rate) Value Turbo Long = (Financing level – Price of underlying) (Ratio x Exchange rate) Value Turbo Short =

  12. Example: The value of a Turbo with ratio & FX • Value Turbo Long • Price of underlying USD 360 • Financinglevel Turbo Long USD 295 • Ratio 10 • EUR/USD exchange rate 1.40 • Value Turbo Long = (Price of underlying – Financing level) / (ratio x exchange rate) • = (USD 360 – USD 295) / (10 x (1/1.40)) • = EUR 9.10 • Value Turbo Short • Price of underlying USD 2800 • Financinglevel Turbo Short USD 3500 • Ratio 100 • EUR/USD exchange rate 1.40 • Value Turbo Short = (Financing level – Price of underlying) / (ratio x exchange rate) • = (USD 3500 – USD 2800) / (100 x (1/1.40)) • = EUR 9.80

  13. The value of a Turbo Turbo Long InBev Financing level: 40 EUR Stop-loss level: 42 EUR InBev Turbo Long EUR 55 EUR 15 EUR 10 EUR 50 Underlying Turbo Long Return undelying = +10% Return Turbo Long = +50%

  14. The value of a Turbo Turbo Long InBev Financing level: 40 EUR Stop-loss level: 42 EUR InBev Turbo Long EUR 10 EUR 50 EUR 45 EUR 5 Sous-Jacent Certificat Turbo Long Return undelying = -10% Return Turbo Long = -50%

  15. The value of a Turbo Turbo Long InBev Financing level: 40 EUR Stop-loss level: 42 EUR InBev Turbo Long EUR 10 EUR 50 EUR 42 EUR 2 Sous-Jacent Certificat Turbo Long Return undelying = -16% Return Turbo Long = -80%

  16. Turbos Advanced • 4. Adjustments to the financing- and stop loss-level

  17. Adjustments to the financing- and stop loss-level • PLEASE NOTE- the financing level and stop loss-level can change due to any of the following factors: • Adjustments for thefinancing costsand –revenues • Adjustments for the effect ofdividend • Adjustments for the effect offutures • Adjustments for the effect corporate actions (example: stock split)

  18. Ajustments for financing costs and -revenues • Investors arecharged interestand a 2% feeover the financing level of aTurbo Long, also referred to asfinancing costs, • Turbo Shortinvestors generallyreceive interestand are charged a 2% feeover the sum of the value of the Turbo and the short position, also known asfinancing revenues. • Current overnight LIBOR (07/12/2011): 0.62% EUR and 0.15% USD • TL 2% + LIBOR (2.62%EUR / 2.15%USD) • TS 2% - LIBOR (1.38% EUR / 1.85% USD) • The stop-loss levelfor each Turbo is adjusted monthly to accommodate for changes in the financing level.

  19. Adjustments for the effect of dividends • Some underlyings issuedividends. Dividend payments will, under equal market circumstances, lead to a proportional decrease in the price of the underlying. • To keep thevalue of the Turbo dividend-neutral, the financing level of the affected Turbos will be adjusted by the net dividend before the opening of the exchange on the ex-dividend date. • For Turbos on Indices, the subtraction is done by the net amount, corrected for the weighting of the dividend-paying company in the Index. • To accommodate the changes in the financing level, thestop-loss levelwill also be adjusted on ex-dividend dates.

  20. Example: Adjustments for the effect of dividends • Dividend effect Turbo Long • Price of underlying EUR 15 • Financing level Turbo Long EUR 10 • Ratio 1 • Exchange rate not applicable • Value Turbo Long EUR 5 • Net dividend EUR 1 • Dividend effect Turbo Short • Price of underlying EUR 15 • Financing level Turbo Short EUR 22 • Ratio 1 • Exchange rate not applicable • Value Turbo Short EUR 7 • Net dividend EUR 1

  21. Example: Adjustments for the effect of dividends • Dividend effect Turbo Long • Price of underlying USD 360 • Financing level Turbo Long USD 320 • Ratio 10 • Exchange rate 1.40 • Value Turbo Long EUR 5.60 • Net dividend USD 3 • Dividend effect Turbo Short • Price of underlying USD 360 • Financing level Turbo Short USD 415 • Ratio 10 • Exchange rate 1.40 • Value Turbo Short EUR 7.70 • Net dividend USD 3

  22. Adjustments for the effect of futures • Certain Turbos are issued with afuture contractas underlying. • Future contracts are standardized contracts between two parties to buy or sell a specified quantity of a specified asset at a specified future date at a price agreed today (the future price). • Future contracts are generallytraded at a discount or premium to the spot priceof the underlying of the future contract: • Contango is a situation in which the future price exceeds the spot price, often due to the cost of storing and insuring the underlying • Backwardation is a market condition in which a future price is lower in the distant delivery months than in the near delivery months. This is said to occur due to insufficient supply in the corresponding spot market.

  23. Backwardation The future price willmove uptowards the spotprice.Favorable for theTurbo Long Contango The future price willmove downtowards the spotprice. Favorable for theTurbo Short Adjustments for the effect of futures • As expirationof the future contract approaches, the future price normally moves towards the spot price.

  24. Adjustments for the effect of futures • Futures have anexpiration date(strike date) on whichsettlement of the underlyingcontract is required through either physical delivery or cash settlement. • To prevent settlementof the underlying and to ensure continuation of the Turbo, future contracts arerolled prior to expirationby selling the expiring contract and acquiring the succeeding (most liquid) contract.* • Price differences may exist between futures with different strike dates when future contracts are rolled. • To keep the value of the Turbo neutral for potential price differences upon the future roll, it is possible that thefinancing levelandstop loss-levelof a Turbo on a future will be adjusted on the future roll date *The actual underlying future of a Turbo and the future roll-date can be found under product characteristics on www.abnamromarkets.nl/turbo

  25. Example: Adjustments for the effect of futures • Future effect Turbo Long • Expiring future contract USD 23 • Financing level Turbo Long USD 17 • Ratio 1 • Exchange rate not applicable • Value Turbo Long USD 6 • New future contract USD 24 • Future effect Turbo Short • Expiring future contract USD 23 • Financing level Turbo Short USD 30 • Ratio 1 • Exchange rate not applicable • Value Turbo Short USD 7 • New future contract USD 24

  26. Turbos Advanced5. Hedging a stock portfolio

  27. Hedging a stock portfolio • Stock portfolios can be hedged by using Turbos Short, as this Turbo will increase in value as the underlying stock decreases in value • In order to determine how many Turbos Short are required to hedge a stock portfolio, we can use the following formula: Number of Turbo’s = (Position to be hedged / price of underlying) x ratio • The number of Turbos required is independent of the stop loss-level of the chosen Turbo. The stop loss-level of the chosen Turbo will, however, impact: • The risk of being un-hedged • The initial investment required

  28. Hedging a stock portfolio • Should we, for example, have a stock portfolio which tracks the AEX-index and the AEX-index is pricing at 305, we would be able to hedge this portfolio with 820 Turbos Short on the AEX-index: Number of Turbos = (25.000 / 305) x ratio = 819.67 = 820 • Fixed number of Turbos needed • The cost for the hedge depends on the strike of the Turbo

  29. Hedging a stock portfolio • In this case, we could use the following Turbo:

  30. Hedging a stock portfolio • In this case, we could use the following Turbo: What is the amount necessary in order to hedge 25.000 EUR?

  31. Hedging a stock portfolio • In this case, we could use the following Turbo: • The required investment can then be calculated as follows: Required investment = Number of Turbo’s x Value Turbo* = 820 x 4 = EUR 3.280

  32. Hedging a stock portfolio Portfolio:

  33. Scenario 1: AEX declines with 10% to 274.50

  34. Scenario 1: AEX declines with 10% to 274.50 1. Portfolio: 25.000 EUR x 0.9 = 22.500 EUR 2. Turbo: (345 – 274.50) / 10 = 7,05 EUR 7.05 EUR x 820 Turbos = 5.781 EUR

  35. Hedging a stock portfolio Scenario 2: AEX increases with 10% to 335.50 Please note: • The hedge is only effective until the moment the stop loss-level of the Turbo has been hit • Any changes in the portfolio value will require a change in the Turboposition in order for the hedge to remain effective • The scenarios do not take into account transaction costs, financing costs and the difference between the bid and offer price. The examples are based on assumptions and have been included for illustration purposes only. These examples are not representative of future results and no rights can be derived therefrom.

  36. Turbos Advanced6.Neutralize currency fluctuations on stock portfolio

  37. Neutralize currency fluctuations on stock portfolio • You believe in the future of the company Apple and decide to buy 1000 shares in Apple Inc at a value of 390 USD a share. • You do believe that Merkel and Sarkozy will find a solution for the problems in the Euro zone. • You do want to hedge your current portfolio against potential los giving currency movements.

  38. Neutralize currency fluctuations on stock portfolio • You can hedge your portfolio against potential negative currency movements. • It is necessary to decide how many Turbos are needed to cover the entire portfolio by using the following formula: Total number of Turbos = (Total amount / Financing level) x ratio • The Financing level is a key factor in determining the number of Turbos needed for the hedge structure. • Use a Turbo Long to cover against a rising value of the euro.

  39. Neutralize currency fluctuations on stock portfolio • We do want to cover 390.000 USD against potential negative EUR/USD currency movements. • (1.40 – 1.33) 0.01 x 1.40 = 5 EUR

  40. Neutralize currency fluctuations on stock portfolio • Total number of Tubos needed for this hedge: = (Amount / Financing level) x ratio = (390.000 / 1.33) x 0,01 = 2932.33 = 2932 • Investment needed: = Number of Tubos x Value of the Turbo = 2932 x EUR 5 = EUR 14.660 EUR Cover a position of 390.000 USD with 14.660 EUR.

  41. Neutralize currency fluctuations on stock portfolio • Please note: • The hedge is only effective until the moment the stop loss-level of the Turbo has been hit • Any changes in the portfolio value will require a change in the Turbo position in order for the hedge to remain effective • The scenarios do not take into account transaction costs, financing costs and the difference between the bid and offer price. The examples are based on assumptions and have been included for illustration purposes only. These examples are not representative of future results and no rights can be derived there from.

  42. Neutralize currency fluctuations on stockportfolio Scenario 1: EUR/USD goes from 1,40 to 1,45; dollar depreciates against euro Scenario 2: EUR/USD goes from 1,40 to 1,35; euro depreciates against dollar

  43. Risks

  44. Most important risks • Turbos are high risk investment products that are only suitable forexperienced and active investors with a strong risk appetite. • Before investing in Turbos investors should beaware of, and fully understand, allthe risksinvolved with investing in this product, such as: • Leverage risk: An investment in Turbos contains a higher risk than a direct investment in an underlying because the leverage effect causes the value of the Turbo to fluctuate at a faster rate than the value of the underlying. • Stop loss risk: A Turbo may expire and become worthless if the stop-loss level has been hit or breached. In such cases, investors may suffer a total loss of the capital invested. • Exchange rate risk: The value of a Turbo may be influenced by fluctuations in the currency of denomination of the underlying, should this currency be different from that of the Turbo. • Liquidity risk: Investors may be unable to trade in a Turbo in the event of a malfunction in the trading system of Goldman Sachs or the exchange/platform on which the Turbo or the underlying is traded. • Credit risk: Investors in ABN AMRO Turbos are exposed to the credit risk of ABN AMRO Bank N.V. • Please read the prospectus, supplements and final terms for a complete description of the risks involved with Turbo investments

  45. Stop loss risk RISK REAL TIME -EXCEL FILE-

  46. What makes the ABN AMRO Turbo unique?

  47. What makes the ABN AMRO Turbo unique? • Improvedstop loss timesfor Turbos oncommoditiesandbonds • Improvedstop loss pricesfor Turbos oncurrency and commodities • Quick publication ofsalvage values • Competitive bid/offer spreads • Large bid/offervolumes • Daily call right • ABN AMRO Turbo App + TA • ABN AMRO Bank N.V.as issuer

  48. Securities Law Disclaimer • ABN AMRO Bank N.V. (‘ABN AMRO’) is not a registered broker-dealer under the U.S. Securities Exchange Act of 1934, as amended (the "1934 Act") and under applicable state laws in the United States. In addition, ABN AMRO is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, absent specific exemption under the Acts, any brokerage and investment advisory services provided by ABN AMRO, including (without limitation) the products and services described herein are not intended for U.S. persons. Neither this document, nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. • Without limiting the generality of the foregoing, the offering, sale and/or distribution of the products or services described herein is not intended in any jurisdiction to any person to whom it is unlawful to make such an offer, sale and/or distribution. Persons into whose possession this document or any copy thereof may come, must inform themselves about, and observe, any legal restrictions on the distribution of this document and the offering, sale and/or distribution of the products and services described herein. ABN AMRO can not be held responsible for any damages or losses that occur from transactions and/or services in defiance with the restrictions aforementioned.

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