What is FORWARD FOREIGN EXCHANGE (FX) CONVERSION?

An ARBITRAGE strategy in the FOREIGN EXCHANGE market to take advantage of mispricing in currency FORWARDS. The conversion occurs when forwards appear CHEAP, and is created by buying a forward, selling a CALL OPTION, and buying a PUT OPTION (all with the same maturity date); if the forward is mispriced, the strategy yields an arbitrage profit. See also FORWARD FOREIGN EXCHANGE REVERSAL.

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