Together with a consortium of large banks, Merrill Lynch recently formed ELEMENTS, which unveiled five new currency Exchange Traded Notes (ETNs).  Before ML entered the market via ELEMENTS, there were only two banks offering currency ETF products: Barclays Capital and Rydex, whose funds are branded CurrencyShares and iPath, respectively.  ETNs differ from ETFs in that the former represent a debt obligation whereas the latter represent a form of equity.  In practice, however, since the risk of default is relatively low, the two types of securities are functionally equivalent.  Both pay interest slightly below the benchmark interest rates of the currencies to which they are connected. The five new ELEMENTS ETNs are separately tied to the performance of the Canadian Dollar, Euro, Swiss Franc, British Pound, and Australian Dollar. Index Universe reports:

Why would anyone choose the new ELEMENTS ETFs? Because they make semiannual cash dividend payments to noteholders based on the interest income. The iPath ETNs, in contrast, incorporate that income into the value of the note … a kind of "virtual interest" that is only realized when the noteholder sells.

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