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Trade
Conversion arbitration operations
Arbitration conversion transactions – transactions between the Bank and the Customer for the purchase or sale of foreign currency of one type for another type of foreign currency with the expectation agreed upon by the parties, the date of valuation. Thus, necessarily will take place a minimum of two transactions in opposite directions (buying and selling) by the same amount. The performance of such operations with deferred calculation of the pre-agreed exchange rate, can be a necessity and a speculative vision.
In the first case, when one of the parties to the transaction may not have the capacity currently to provide the necessary amount of currency. This situation may occur if the organization that need capital in foreign currency for the transaction, can not in the shortest possible time to buy because of the need to transfer their funds in national currency in foreign units.
The problem may be more complex as the need to sell securities to realise a desired amount of the transaction.
In the second case, a party may rely on the change in the market rate of the currency in which you have to pay with a partner. Then discussed the date of settlement, and the organization expects a decline in the value of the monetary unit, which is planned to be purchased for the transaction. The intention of the company is speculative, however, in that case, if the assumption of a decrease in foreign currency value will be incorrect, the organization will have to buy money to trade at a less favorable rate.
Definition and conversion device arbitration
Conversion arbitrage on the stock exchange called the operation, which bought the securities, and then purchased a put option and sold call option, the terms of which are identical. Conversion include three elements:
• capture of arbitration arrived with a long stock purchase
• short sale call
• the purchase of a put with the same strike and same expiration date.
Reversals include:
• short sales of shares,
• sale of a put
• the purchase of a call with the same strike and expiration date.
Application, as you could already guess, for the conversion of the arbitration is in options trading. In fact, the conversion – a long position on the stock combined with short selling of the circle, creates a synthetic short position and buying a put of the same strike.
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| Category: Forex | Added by: (05.11.2017)
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| Views: 341
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