From ACT Wiki
Revision as of 13:05, 15 August 2013 by Doug Williamson (Spacing and wiki listing 15/8/13)
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.