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Put-call-forward exchange parity theory



Abbreviated PCFP theory. A relationship between a CALL option and a PUT option established through the forward market. The theory holds that the option of buying the domestic currency with a foreign currency at a certain price X is equivalent to the option of selling the foreign currency with the domestic currency at the same price X. Therefore, the CALL option in the domestic currency becomes the PUT option in the other, and vice versa.



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