Synthetic: Difference between revisions

From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson
(Headers changed for examples to make them standout)
imported>Doug Williamson
(Add link.)
 
(4 intermediate revisions by the same user not shown)
Line 20: Line 20:


== See also ==
== See also ==
* [[Outright]]
* [[Arbitrage]]
* [[Arbitrage]]
* [[Foreign exchange forward contract]]
* [[Foreign exchange forward contract]]
* [[Outright]]
* [[Parity]]
* [[Synthetic forward]]
* [[Synthetic LIBOR]]
[[Category:The_business_context]]
[[Category:Financial_products_and_markets]]

Latest revision as of 22:59, 17 July 2021

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


Example 1

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