Österreichische Volksbanken-Aktiengesellschaft ... - Volksbank AG

Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be
revised or withdrawn by the rating agency at any time.
Reinvestment risk
Investors may be exposed to risks connected to the reinvestment of cash resources freed
from any Note. The return the investor will receive from a Note depends not only on the
price and the nominal interest rate of the Note but also on whether or not the interest received
during the term of the Note can be reinvested at the same or a higher interest rate
than the rate provided for in the Note. The risk that the general market interest rate falls
below the interest rate of the Note during its term is generally called reinvestment risk. The
extent of the reinvestment risk depends on the individual features of the relevant Note.
Risk of early redemption
The Final Terms of a particular Series of Notes may provide for a right of termination by
the Issuer. Such right of termination is often provided for Notes issued during periods of
high interest rates. If the market interest rates decrease, the risk to investors that the Issuer
will exercise its right of termination increases. As a consequence, the yields received upon
redemption may be lower than expected, and the redeemed face amount of Notes may be
lower than the purchase price paid by the investor. As a consequence, part of the capital
invested by the investor may be lost, so that the investor in such case would not receive the
total amount of the capital invested. In addition, a future yield expected by the investor may
be lost and investors that have received monies through an early redemption and choose to
reinvest such monies may be able to do so only in securities with a lower yield than the
redeemed Notes.
Cash flow risk
In general, structured Notes provide a certain cash flow. The Final Terms set forth under
which conditions, on which dates and in which amounts interest and/or redemption amounts
are/is paid. In the event that the agreed conditions do not occur, the actual cash flows may
differ from those expected.
The materialisation of the cash flow risk may result in the Issuer’s inability to make interest
payments or in the inability to redeem the Notes, in whole or in part.
Option price risk
The option price is a premium the buyer of an option must pay in order to be allowed to
exercise its option right at or by the final maturity date, that is to request that the seller of
the option delivers or accepts, as the case may be, the specified Underlying at the agreed
price. The option price is determined by supply and demand on the market and is related to
a theoretical exercise price of a mathematical option pricing model.
The price risk of an option is influenced by the price and volatility of the Underlying, the
strike price, the expiration date and the risk-free interest rate. Strong fluctuations in the
price of the Underlying or in the volatility may lead to a strong increase or decrease in the
price of the option. The option price usually decreases as its expiration date approaches.
Currency risk – Exchange rate risk
The currency risk is the risk of a negative difference between the actual and the expected
yield from a Note denominated in a foreign currency. The currency risk consists of the interest
rate risk (see above) and the exchange rate risk. The exchange rate risk results from a
development of the exchange rate which is negative for the investor. The exchange rate
denominates the price ratio between two currencies, whereby the quantity of foreign money
units per Euro is considered (indirect quotation).
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