Synthetic: Difference between revisions
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A synthetic financial instrument is a combination of two or more instruments, designed to replicate the cashflows from another instrument. | A synthetic financial instrument is a combination of two or more instruments, designed to replicate the cashflows from another instrument. | ||
For example, a synthetic forward foreign exchange contract can be built from a simultaneous combination of: | For example, a synthetic forward foreign exchange contract can be built from a simultaneous combination of: | ||
Revision as of 17:24, 12 December 2014
A synthetic financial instrument is a combination of two or more instruments, designed to replicate the cashflows from another instrument.
For example, a synthetic forward foreign exchange contract can be built from a simultaneous combination of:
- A spot foreign exchange contract.
- A borrowing in one of the currencies; and
- A deposit of equal maturity in the other currency.
