Products & Their RisksQuestion 172 of 398
An investor in a structured note linked to a stock index should understand that, even if the index rises, the investor can still lose money if:
a.The index pays no dividends
b.The issuing financial institution becomes insolvent and cannot pay
c.The note is held to maturity
d.Interest rates stay unchanged
Explanation
A structured note is an obligation of the issuing financial institution, so its promised payoff depends on that issuer remaining solvent. If the issuer becomes insolvent, the investor is a general creditor and may lose principal regardless of how the linked index performed. This issuer credit risk is a key, sometimes overlooked, feature of structured products.
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