Which index tracking method requires a swap agreement?
A.
Full replication
B.
Stratified Sampling
C.
Synthetic Replication
D.
Optimisation
The Answer Is:
C
This question includes an explanation.
Explanation:
Synthetic replication involves tracking an index using derivatives such as swaps. A swap agreement allows the fund to replicate the index performance without holding the actual underlying assets, reducing transaction costs and increasing efficiency.
[Reference:, ICWIM, Topic: Index Funds and ETF Strategies., UCITS guidelines on synthetic and physical replication methods., , ]
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