Identifier: C6T3L1 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Decision: A foreign inflation index and original-principal floor do not protect a secondary purchase premium or Turkish real wealth. Objectives: Compare nominal and indexed sovereign cash flows; Calculate a supplied indexed principal and coupon ledger; Separate domestic purchasing power from foreign index protection. Prerequisite: C6T2L5.

All numerical offers, rates, prices, account chains, fees and contract parameters below are hypothetical, unless a primary document is expressly identified. They are not current executable offers or evidence that a Turkey-resident investor can access them. The assumed investor is a Turkey-resident individual outside a business, with no assumed US citizenship or tax residence; actual classification must be checked. Results are before actual tax unless a fictional tax schedule is explicitly supplied. No account, deposit or trade is required.

Mechanics

Carry the domestic debt toolkit abroad without carrying its conventions. A sovereign bill is generally discount cash flow, a nominal coupon bond pays defined nominal amounts, and an inflation-linked issue adjusts specified cash flows to its own price index. Issuer credit, law, currency, quotation, settlement and indexation lag remain issue-specific. US TIPS are an example of inflation-adjusted principal with coupons on that principal and an original-principal maturity floor. That protects the stated US-index convention, not Turkish inflation, a secondary purchase premium or an early-sale price.

Price and return drivers

Compare cash on common dates and currencies. A bill’s discount from face is not the same denominator as its investor return. Nominal coupons are not inflation-adjusted yields. For an indexed bond use the supplied index ratios at each coupon, then apply the actual redemption floor. A real yield is a pricing concept; a positive index adjustment does not guarantee a positive holding-period return when the investor paid a premium or sells before maturity. Foreign FX adds a separate base-currency result.

Worked case

Synthetic USD bill: pay 9700 for 10000 in 180 days, no interim income. Gross return 300/9700=3.0928%; simple 365-day annualization is 6.2715%, not a promised reinvestment rate. Separate synthetic indexed sovereign bond: original principal 10000, purchase dirty price 10300, annual coupon 2% paid semiannually, first coupon index ratio 1.02 and final ratio 1.04; next-day cash settlement, no holidays. First coupon 10000×1.02×0.02/2=102; final coupon 104; redemption 10400. Gross cash 10606; with 20 investor charges, net profit 286. All ratios, prices and timing are original teaching inputs, not an actual TIPS issue.

Adverse case

Hold the first ratio 1.02 fixed and vary the final index ratio to 0.98, 1.00, 1.04. Applying the declared original-principal floor gives redemption 10000, 10000, 10400 and final coupons 98, 100, 104. Total cash 10200, 10202, 10606; after 10300 purchase and 20 charges, net−120, −118, +286. The floor did not return the purchase premium. Before maturity, a supplied bid 9800 plus the already received 102 coupon and 20 total costs produces−418; the maturity index floor cannot be substituted for an interim bid. Even full USD repayment can lose TRY purchasing power through FX and Turkish inflation.

Practical use

For each actual sovereign issue verify auction/secondary access, denomination, coupon/day-count, dirty price, index lag/ratio, redemption rule and custody payment chain. TreasuryDirect rules describe its US route; they do not establish eligibility for a Turkey-resident individual. A foreign broker route requires separate account verification.

Before implementation verify the legal entity, jurisdiction, authorized access, actual instrument identifier and full documents. Include bid/ask, commissions, transfer/FX, custody, funding and exit costs; avoid deducting already embedded fund expenses twice. Recheck residency, income year, acquisition dates, withholding, treaty and domestic declaration treatment. Foreign tax concessions or investor protections do not follow automatically from the instrument name or trading currency.

Decision boundaries

Choose nominal cash matching when the liability is nominal in the same currency and indexed cash when the actual index exposure is relevant. Decline a foreign inflation-linked bond marketed as a guaranteed Turkish real return. Compare with Turkish-issuedEurobonds in the same USD base while retaining issuer, law and liquidity differences. A sovereign label is not a universal exemption from duration or currency risk.

Practice and references

Exercise: face 5000, index ratio 1.03, annual coupon 1.5%, semiannual payment. Solution: adjusted principal 5150; coupon 5150×0.015/2=38.625 USD. If the original-principal floor is 5000 and final ratio 0.96, redemption 5000, not 4800 and not an investor’s higher purchase cost.

Takeaway: A foreign inflation index and original-principal floor do not protect a secondary purchase premium or Turkish real wealth. References: product card, formula; glossary: Foreign sovereign; Indexed principal; Original principal floor. Next: C6T3L2. Topic test.

Sources: GIB: Investment Income Guide (retrieved 2026-10-26; Introduction and foreign income/reporting framework). US Treasury: Marketable Securities FAQs (retrieved 2026-10-26; Payments, auction and intermediary holding routes). US Treasury: Treasury Inflation Protected Securities (retrieved 2026-10-26; Indexed principal, interest and maturity floor). Revision: 2026-10-26; recheck changeable rules before publication.

Shared reference guide