Definition of an exchange option

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Foreign Exchange Option Foreign Exchange Option Meaning: In foreign exchange terminology, a foreign exchange option is a contract that confers upon its buyer the right, but not the obligation, to enter into a foreign exchange contract at a particular price and date in the future for a price known as the premium. They are usually specified by their currency pair, strike price, expiration date, direction and amount.

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Most currency options traded are customized contracts dealt in the over-the-counter forex market, although standardized forex options trade on the Chicago IMM and Philadelphia Stock Exchanges. Foreign Exchange Option Example: A foreign exchange option can be used by a company looking to hedge or protect against a rise in the U.

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They could do so by purchasing a U. On the other hand, a speculator might purchase such an option if they wished to hold an extended long position in the U.

Dollar against offline earnings currency because they believed that the U. Dollar would rise. Ask a question No login required Caution - please do not have any sensitive information in this field, this question will be made public The question has been received and will be be reviewed for approval by a moderator. Thank you for your contribution.

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