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Derivatives

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  • October 16, 2021
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Recovery Forward Contract

A double barrier knock-out option that is combined with a currency forward having an rebate feature. More specifically, the buyer can sell a foreign currency forward at a premium over the market rate provided that the market rate doesn’t move above the contract rate or below a lower barrier during the lifespan of the contract. If the lower barrier is broken through, the seller will have to rebate part of the premium. And hence, the buyer recovers some of the premium amount.


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