(offer) -0.43% of USD notional. Spot breakeven 6.226 2) Buy a ly expiry, 6.3 / 6.8 strike USDCNH call spread. Premium (offer) -0.30% of USD notional. Spot breakeven 6.318 USDCNH spot = 6.029, ly ATMF = 6.093 Indicative levels only, subject to market movement. Source: DB KCP London, 1/28/14. These premiums are very low compared to the potential returns if USDCNH turns higher. Implied vol is approx. 3% The complacency and positioning among Fx and Fx options participants in USDCNH is high USDCNH (Embedded image moved to file: pic23767.gif) used with permission of Bloomberg Finance LP PBoC has significantly tightened money market rates to curb shadow banking and asset speculation Shanghai interbank offered rate fixing - 1 month (Embedded image moved to file: pic15114.gif) Used with permission of Bloomberg Finance LP The recent headlines on bad loans in china's shadow banking industry have raised concerns of a systemic event china's trust industry has relatively high risk shadow banking products given the liquidity risks. These products have seen rapid growth since 2010, reaching Rmb10.1 to as of 3Q13 with a 2010-3Q13 CAGR of 55%. (Embedded image moved to file: pic27888.gif) Asian corporates have sold a significant quantity of options (to enhance returns) depressing implied volatility IF USDCNH starts to retrace higher, option sellers will short cover options they have (Embedded image moved to file: pic19759.gif) Used with permission of Bloomberg Finance LP KCP capital Markets Vinit Sahni I Nav Gupta I Vanshree Verma (Embedded image moved to file: pic30802.gif) Nam Gupta Managing Director Deutsche Bank AG, Filiale London Deutsche Asset & wealth Management 105/108 Old Broad St (Pinners Hall), EC2N lEN London, United Kingdom Tel. +44 (20) 754-13613 Mobile +44 7887 628487 Email [email protected] Any proposed ideas are being delivered to you by the Denwm Key client Partners ("KCP") London desk for discussion purposes only, and do no