Deposit plus option. Dual currency deposit
If an investor has a view on the initial investment currency a dual currency strategy allows the investor to benefit from higher returns. The returns are higher than the returns on normal deposits in compensation for the higher risks that are associated with DCDs due to being exposed to foreign exchange.
At maturity, if the local currency is weaker than the strike rate, funds will be redeemed in the local currency. If the local currency is stronger, the principal is repaid in the alternative currency, converted at the strike rate.
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Normally in the options market the seller of an option is paid before the premium value date or spot datehowever in the case of the DCD the client is paid at the end of the deposit period. Adding this to the deposit redemption-amount means that the amount of currency that will need converting if the option strike is passed at expiry has now increased. So the deposit plus option face amount needs to be altered to take the extra interest into account.
This affects the premium again, and so on. To avoid having to compute this to infinity one can use a geometric series with a.