Free Right Of Exchange

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DEFINITION of 'Free Right Of Exchange'

An investor's right to transfer an asset to another party without incurring any transaction fees on the exchange. Unlike a sales transaction, the investor is either giving away or trading stock and should not be taxed on the transaction.

BREAKING DOWN 'Free Right Of Exchange'

The free right of exchange plays an important role in the gifting or donation of stock. Making a charitable donation of stock will allow you to avoid any capital gains tax that has been accruing on the asset because the transaction is not taxable as a sale.

Exchange funds capitalize on the free right of exchange by allowing investors to trade larger holdings of a single stock for diversified units in a portfolio. Because the stock is swapped, no transaction or sales costs are associated with the exchange. This allows an investor to balance his or her portfolio while avoiding capital gains tax.

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RELATED FAQS
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    Giving stock, instead of cash, as a donation can greatly benefit both parties. You will find that most charities, hospitals, ... Read Full Answer >>
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    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  3. Should you calculate Value at Risk (VaR) for counterparty credit risk?

    Value at risk (VaR) calculations may be helpful for risk management when trading credit default swaps and other derivatives ... Read Full Answer >>
  4. For what financial instruments is a modified duration relevant?

    The modified duration is a formula used to calculate the percent change in the price of a financial instrument when there ... Read Full Answer >>
  5. What is the difference between derivatives and swaps?

    Derivatives are securities with prices dependent on one or multiple underlying assets. Common derivatives include forward ... Read Full Answer >>
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    Tenor – the amount of time left on a debt security's maturity – is important in a credit default swap because it coordinates ... Read Full Answer >>

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