EFTA01450724

Premium Date: Fri 27-Dec-2013 leg 2: Knockout Option Call <Client> buys European EUR Call on EUR/USD with American Knock-Out Strike: 1.37 Notional: EUR 1,000,000 American Knock-Out: 1.35 Expiry: wed 25-Jun-2014 settlement: Fri 27-Jun-2014 ZoneCut: NY Premium: USD 15,930 Premium Date: Fri 27-Dec-2013 (Embedded image moved to file: pic06256.gif) Forwarded by Tazia smith/db/dbcom on 12/23/2013 10:46 AM From: Vanshree Verma/db To: Tazia Smith/db cc: • Sathe/db Date: 12/19/2013 12:25 PM Subject: Inflation Material [I] Classification: For internal use only John-8 Manley/db Hi All, Here is some material on inflation and the product: RATIONALE 1) Policy bias remains loose across central banks. 'Real' fed funds rate at historical lows, while continuation of QE implies massive expansion of the monetary base. we see upside risks to inflation in the long term given Fed's tolerance for inflation in the short term, and the sheer magnitude of liquidity in the system. (Embedded image moved to file: pic14288.gif) 2)Historically period of fiscal strain have been followed by rising inflation as monetary policy has "monetised" public debt. Ken Rogoff: "Inflation needed to combat crisis"... "a sudden burst of moderate inflation would be helpful in unwinding today's epic debt morass" (Embedded image moved to file: pic05509.gif) central banks have no experience with unconventional policy measures. In particular, the effect on inflation expectations remains unclear. There is a practical limit to quick unwinding of measures and consensus opinion points towards a lag in exit and some overshoot of inflation target as a distinct possibility. 3) Equities, commodities and property have proved to be unstable or unreliable hedges against inflation in the past. The only way to achieve pure inflation hedge or take a view on inflation is via an inflation-linked product where cash flows are based on CPI. (Embedded image moved to file: pic15135.gif) PRODUCT 4) An inflation linked product such as the following appears interesting because it takes advantage of any upside risks to inflation in the future, vinit CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0106546 CONFIDENTIAL SDNY_GM_00252730 EFTA01450724