Combining a protective put with a forward contract generates equivalent outcomes at expiration to those of a:

Business

1 answer:

Juliette [100K]3 years ago

7 0

Answer:

Fiduciary call.

Explanation:

Foreign exchange market can be defined as type of market in which the currency of one country is converted into that of another country.

For example, the conversion of dollars of the United States of America can be converted into naira (Nigeria) at the foreign exchange market.

A covered interest arbitrage can be defined as trading strategy in which an investor minimizes his or her currency risk by using a forward contract to hedge against the interest rate difference between two countries i.e the exchange rate risk. Thus, it's considered to be the most common interest rate arbitrage around the world.

Generally, when a protective put is combined with a forward contract it would generate equivalent outcomes at expiration to those of a fiduciary call.

This ultimately implies that, a fiduciary call combines both a call option and a bond that's risk free and matures on the expiry date of an option.

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