Page 256 - FM Integrated WorkBook STUDENT 2018-19
P. 256
Chapter 13
Currency options
Options give the right but not the obligation to buy or sell currency at some point in
the future at a predetermined rate.
A company will therefore:
exercise the option if it is in its interests to do so (if the rate has moved
unfavourably), or
let the option lapse (if the rate has moved favourably or of there is no longer a
need to exchange currency)
Options provide extra flexibility – the opportunity to take advantage of favourable rate
movements, but they come with a cost – a premium paid up front and spent whether
the option is exercised or not.
Options may be:
put – the right to sell currency at a particular rate
call – the right to buy currency at a particular rate
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