Difference between revisions of "Synthetic"

From ACT Wiki
Jump to: navigation, search
(Link with Forward yield page.)
Line 2: Line 2:
  
  
'''Example 1'''
+
{{font color|green|Example 1}}
  
 
A synthetic two-year deposit can be built from a simultaneous combination of:
 
A synthetic two-year deposit can be built from a simultaneous combination of:
Line 23: Line 23:
 
* [[Arbitrage]]
 
* [[Arbitrage]]
 
* [[Foreign exchange forward contract]]
 
* [[Foreign exchange forward contract]]
* [[Forward yield]]
 

Revision as of 12:37, 13 November 2015

A synthetic financial instrument is a combination of two or more instruments, designed to replicate the cashflows from another instrument.


Template:Font color

A synthetic two-year deposit can be built from a simultaneous combination of:

  1. A one-year deposit to start today and
  2. A forward contract to re-deposit the maturing proceeds after one year, at a pre-agreed rate for the second year.


Example 2

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