Principal Exchange Rate Linked Security - PERLS

There’s the kind that comes in nuggets of wisdom. The kind that sings. And the kind you wear. And yeah, none of them have anything to do with this PERLS. PERLS stands for:

Principal

Exchange

Rate

Linked

Security

What is it? It’s just a normal-ish bond that pays interest twice a year, but whose yield is linked. See the “L” there, to a given foreign exchange rate. The base currency in PERLS is the U.S. dollar. But the interest rate paid is based on a foreign, i.e. non-U.S. currency.

Like…say a set interest rate is 5% on a $1,000 PERLS. If interest were paid in U.S. dollars, well, easy, you’d just take $1,000 times 0.05 and get $50...and that’s what you’d be getting as interest if you owned that PERLS. Easy. Just a bond. .

But a little different with a PERLS. If interest is being paid in euros, for example, and say the euro is trading at 80 cents on the U.S. dollar. Or rather you can buy a Euro for 80 american cents, you’d instead be collecting interest on that thousand dollar bond in Euros. That is, instead of 5 percent on the grand paid as $50, you’d instead get 60 euros because a single u.s. Dollar buys you 1.2 euros at this exchange rate moment in time.

So yeah, sadly, you can’t pay your interest in pearls of wisdom, but you know what they say, “Money can’t buy happiness…unless you have an Amazon Prime account and there’s a half-off Memorial Day special discount.” That one’s a freebie.