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Currency Risk Disclosure Statement

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Currency Risk Disclosure Statement CURRENCY RISK DISCLOSURE STATEMENT This Statement supplements and should be read in conjunction with the ISDA General Disclosure Statement for Transactions and the ISDA Disclosure Annex for Foreign Exchange Transactions, which collectively describe many of the risks that arise from transactions that involve rates of exchange between currencies (“FX Transactions”). The purpose of this Statement is to describe some of the most material factors that influence day-to-day price changes in FX Transactions and the factors and influences that might lead to significant or catastrophic losses. This Statement is not intended as a substitute for more complete information about the workings of foreign exchange markets, which can be obtained from textbooks and technical treatises on the subject and your own advisors. Certain types of FX Transactions (in particular, currency options and option combinations) are, by their nature, too customized to provide relevant historical data. For more specific information regarding the risks and considerations of a specific FX Transaction, please request a scenario analysis from your FX Specialist. Currency risk is the risk that your position in an FX Transaction will be adversely affected by changes in the relative value of the relevant currencies. The value of any one particular currency versus another is, by and large, determined in the same manner as for all commodities – by supply and demand. For any country or other currency issuer, the ultimate supply of currency is primarily a function of the creation of money by its central bank, but in a practical sense the supply of a particular currency may be affected by many factors including international trade settlements, speculative trading activity, merger and acquisition transactions, central bank action, and cross-border interest rates. The transactional demand for a currency is similarly affected by corporate and investor activity, though the driving force is frequently related to the economic performance of the subject country or issuer, its political stability, state-sponsored impediments to the movement of capital, and other factors such as anticipated rates of inflation. Currency markets are inherently volatile because these factors change every day and are beyond the control of the parties. If you have an economic position equivalent to ownership of a currency through an FX Transaction, the value of the FX Transaction could decline drastically upon the occurrence of one or more of the following events with respect to the relevant country or issuer: Government imposition of fiscal, monetary or exchange controls A significant change in interest rates A significant change in expected levels of inflation Currency devaluation Political instability and civil unrest Major trade imbalances Market activity by speculators In the case of a foreign exchange forward (an agreement to exchange one amount of currency for another at some pre-agreed future date), the value of the contract is determined primarily by the spot exchange rate for the relevant currency pair, its value rising or falling by roughly the same percentage as the percentage change in the spot rate. Experiencing a gain or loss following a spot movement is dependent on whether the forward contract holder agreed to buy or sell the underlying currency. For example, a forward contract to sell a currency will lose roughly 5% of its value if the underlying currency appreciates by 5%, while a forward contract to buy the currency would simultaneously gain by a like amount. The grid below reflects the average change in value of selected collections of currencies from around the world. Through a ten-year analysis of currency fluctuations starting in 2003, the chart highlights the average absolute change in value of various currencies against the US dollar over a series of specified time horizons. Individual currencies may move more or less than these averages - at times significantly so. The chart merely approximates the magnitude of a spot movement one might expect, the change in value from one point in time to another, based on historical averages. Since the primary driver of a forward’s value is the spot rate, the chart gives a sense of the potential change in value that a forward contract might experience over that same time horizon, though the analysis ignores the impact of interest rate differentials which are likely to exist between the currency pairs and vary over time. Past market performance is not a reliable indicator of future outcomes, so actual gains and losses for any particular forward contract would be expected to vary, and potentially significantly, from the values displayed here. Source: Data in this analysis was compiled by Wells Fargo from end-of-day foreign currency rates against the USD as published by Bloomberg LP over the ten-year period beginning in 2003 and ending in 2012. The values represent the absolute difference between the published FX rate on consecutive business days during this time frame versus the same rate published 3, 6, 12 and 24 months later. The mean of these results for the stated time periods is provided. Disclaimer: The data obtained from third-party sources has not been independently verified by Wells Fargo. Actual market movement may be higher or lower than the values provided, depending on market conditions at the time a transaction is entered into. .
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