Currency Options

Currency Options An options contract giving the buyer the right to buy or sell a particular currency at a specified exchange rate within a certain period; basically a hedge instrument in covering risks against foreign exchange exposures by companies. Also called cross-currency options, as the transaction involves two currencies, it is more advantageous than currency futures in that there is no definite commitment to buy or sell at a fixed price. If the exchange rate moves in favour of the buyer of the contract all that he has to do is not to exercise to contract, but buy or sell in the market.

With effect from January 1994 the Reserve Bank of India permitted currency options. See OPTIONS CONTRACT.

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