A structured option that allows the holder to receive an improved exchange rate compared to the equivalent forward exchange rate provided that the spot rate remains within a specified range for the entire life of the structure. It provides the holder with a guaranteed minimum rate, alleviating whereby the risk that the spot rate could be less favorable on expiration date. A range reset forward can be constructed using four simultaneous options:
- a long put option with a double knock-out barrier (an option to sell that ceases to exist if the spot rate trades at or outside the floor rate barrier or the cap rate barrier prior to expiration date) at the improved rate.
- a short call option with a double knock-out barrier (an option to buy that ceases to exist if the spot rate trades at or outside the floor rate barrier or the cap rate barrier prior to expiration date) at the improved rate.
- a long put option with a double knock-in barrier (an option to sell that is contingent upon the spot rate trading at or outside the floor rate barrier or the cap rate barrier prior to expiration date) at the reset rate.
- a short call option with a double knock-in barrier (an option to buy contingent upon the spot rate trading at or outside the floor rate barrier or the cap rate barrier prior to expiration date) at the reset rate.
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