KEY POINTS OF THE BALTIC DRY INDEX

The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the Index tracks worldwide international shipping prices of various dry bulk cargoes.

The underlying can offer to the investor numerous opportunities. Indeed, several facts would point out that the underlying is underevaluated. For instance, supply might not realise as much as expected as further delays can be expected due to financing problems. Furthermore, vessel queues are taking away part of the supply currently and situation is not expected to improve in 2010 due to no new investment programmes at Asian ports. These facts may spur an upward pressure on 1-year forward.

INVESTOR RATIONALE

The investor has a bullish expectation on the Baltic Dry Index but wants to be protected against an unexpected drop of up to 20%.

DESCRIPTION

If after 2 Years the Underlying closes above the initial fixing level, the investor receives a cash payment equal to:

Denomination x 200% x ( Final Fixing Level / Strike)

If at maturity the Underlying closes between 80% of its initial fixing level and the initial fixing level, the investor is still paid back the Denomination. In case the Underlying closes below 80% of its initial fixing level, the investor receives a cash payment equal to:

Denomination x (Strike - Final Fixing Level) / Initial Fixing Level.

This is economically equivalent to buying the Underlying at 80% of its current price.

OPPORTUNITIES

• Full upside geared by the Participation Factor of 200%.
• Reduced downside risk. 
• If a 20% decrease of the price of the Underlying’s occurs, the investor buys the underlying at maturity with a 20% discount

RISKS

The investor suffers a loss if the Underlying closes below the strike level (80% of initial fixing level) at maturity. However, this loss is smaller than the investor had made with a direct investment in the Underlying.

EXAMPLE PAYOFF

Per product, with Denomination USD 1’000

Scenario 1

Underlying closes at 130% at maturity Investor receives USD 1’600 (160%)

Scenario 2

Underlying closes at 80% at maturity Investor receives USD 1’000 (100%)

Scenario 3

Underlying closes at 60% at maturity Investor receives USD 800 (80%)