Replication · Question 10 of 12
How does a synthetically replicating ETF work?
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Answer
- C It holds a basket of securities and swaps its return for the index return
Explanation
In a synthetic ETF, a swap counterparty delivers the index return, and in return the ETF gives up the return of its substitute basket. This can save costs for hard-to-access markets. It creates counterparty risk towards the swap partner, which is limited for UCITS funds.