On a structured deposit where the bank holds the right to extend the maturity, why can the depositor receive a higher rate than on an ordinary time deposit?
Quiz: Structured Deposits and Loans
Last reviewed: September 25, 2026
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3 questions to check your understanding of the chapter “Structured Deposits and Loans”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.
Question 1
Answer and explanation
Answer: B
The depositor hands the right to decide the maturity to the bank and receives payment for it as a higher interest rate. On a structured deposit where the bank holds the right to decide the maturity or to choose the repayment currency, the deposit comes with a trade in which the depositor sells an option to the bank. The payment takes the form of a higher interest rate or an option premium. The bank uses the right when doing so is in its favor, so the depositor accepts a correspondingly worse outcome.
The depositor gives the right to the bank rather than buying it from the bank, so "buying the right and paying for it" has the direction reversed. The rate on this deposit is fixed and is not raised when market rates rise. Even when the bank does not extend the maturity and lets the deposit end at the initial maturity, the same higher fixed rate applies.
If market rates stay the same and the bank lets the deposit end at the initial maturity, the depositor receives more interest than on an ordinary time deposit. If market rates rise and the bank extends the maturity, the depositor may keep the money deposited at a low fixed rate.
Learn more: Structured Deposits
Question 2
Which statement about structured deposits and deposit insurance is correct?
Answer and explanation
Answer: D
If the principal repaid in foreign currency is left in a foreign currency deposit, that foreign currency deposit is not protected by deposit insurance. Foreign currency deposits are outside the scope of deposit insurance. On a deposit with a foreign-currency repayment clause, the principal is repaid in foreign currency if the exchange rate on the determination date, a date fixed in advance, is stronger for the yen than the preset conversion rate, so this treatment matters.
Even for structured deposits in yen, part of the amount, such as interest, is not covered by deposit insurance. It is not that everything is outside the scope. Protection up to 10 million yen of principal is the rule for general deposits, such as time deposits. Some products, such as structured deposits in foreign currencies, are not covered by deposit insurance, so not every structured deposit in a foreign currency is protected up to 10 million yen. Protection for general deposits is limited to a combined 10 million yen of principal per depositor at each financial institution, plus interest and similar amounts up to the date of the failure. It does not cover the full amount of principal.
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Question 3
As a fictional example, a company has borrowed 2 billion yen from a bank at a floating rate of the benchmark rate plus 1.0%. The company has entered into an interest rate swap with the same bank, with a notional amount of 2 billion yen, in which it pays a fixed rate of 1.5% a year and receives the benchmark rate. The interest and the swap payments fall on the same dates. The benchmark rate stays at 0.5% for the whole year. How does the total payment for the year compare with what the company would have paid without the swap?
Answer and explanation
Answer: C
The company pays 20 million yen more than it would have without the swap. With the swap, the total payment is fixed at 2.5% a year (1.0% + 1.5%) whatever the benchmark rate. That is 2 billion yen × 2.5% = 50 million yen. Without the swap, the interest is the benchmark rate of 0.5% plus 1.0%, which is 1.5%, so 2 billion yen × 1.5% = 30 million yen. The difference is 50 million yen − 30 million yen = 20 million yen. Broken down, the swap has the company paying 30 million yen at the fixed 1.5% and receiving 10 million yen at the benchmark rate of 0.5%, so the net swap payment is 20 million yen paid.
The answer of 30 million yen more does not subtract the 10 million yen received on the swap and treats only the 30 million yen fixed payment as the difference. The answer of 10 million yen more is calculated with a principal of 1 billion yen. The answer of 20 million yen less reverses the direction of the difference.
If the benchmark rate is 1.5%, the swap payments net to zero and there is no difference. If it is higher than 1.5%, the same calculation shows that the company pays less than it would have without the swap. Whether the benchmark rate falls or rises, the total payment stays at 50 million yen a year.
Learn more: Structured Loans