Difference between revisions of "Synthetic"

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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.
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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:

  1. A spot foreign exchange contract.
  2. A borrowing in one of the currencies; and
  3. A deposit of equal maturity in the other currency.


See also