9 March 2015
Special Report Euroglut here to stay. trillions of outflows to go
inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to
receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets
holding limits for different types of investors), changes in tax policies, currency convertibility (which may constrain currency
conversion, repatriation of profits and/or the liquidation of positions), and settlement issues related to local clearing houses
are also important risk factors to be considered The sensitivity of fixed income instruments to macroeconomic shocks may
be mitigated by indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates - these are
common in emerging markets. It is important to note that the index fixings may — by construction — lag or mis-measure the
actual move in the underlying variables they are intended to track The choice of the proper fixing (or metric) is particularly
important in swaps markets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate
reference index) are exchanged for fixed coupons. It is also important to acknowledge that funding in a currency that differs
from the currency in which the coupons to be received are denominated carries FX risk. Naturally, options on swaps
(sw options) also bear the risks typical to options in addition to the risks related to rates movements.
Page 12 Deutsche Bank AGlondon
CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0122903
CONFIDENTIAL SDNY_GM_00269087
EFTA01461081