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Capped Forward


An option-based strategy that involves buying a synthetic off-market currency forward and simultaneously buying another option, in order to avail from favorable exchange rate movements. The synthetic forward is constructed by buying and selling a put and a call at the same strike price. The structured transaction is usually set up for zero cost because the premium from the off-market forward offsets the premium paid for the option.

The capped forward is also known as a break forward.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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