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Abstract
This article examines dual currency deposits, which are also known more succinctly as DOCUs, an acronym for double currency units. These are bank accounts in which two different currencies are defined: firstly, the investment currency or the currency in which the initial deposit is made and, secondly, the paired currency, which is another currency that the bank may use to pay off the depositor at maturity at an exchange rate that is fixed in the deposit contract. It is argued that the depositor implicitly issues to the bank a put option on the paired currency, with exercise price equal to the contractually specified exchange rate. This interpretation allows for the determination of the warranted interest rate premium that the depositor must earn over the interest rate offered on a traditional deposit in the investment currency to account for the put option he implicitly issues to the bank. The model developed for the determination of this interest rate premium is applied to the three different types of dual currency deposits that are currently being marketed, namely, standard, appearing, and disappearing.
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