Currency Option
Definition of 'Currency Option'A contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time. For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased. Currency options are one of the best ways for corporations or individuals to hedge against adverse movements in exchange rates. |
|
Investopedia explains 'Currency Option'Investors can hedge against foreign currency risk by purchasing a currency option put or call. For example, assume that an investor believes that the USD/EUR rate is going to increase from 0.80 to 0.90 (meaning that it will become more expensive for a European investor to buy U.S dollars). In this case, the investor would want to buy a call option on USD/EUR so that he or she could stand to gain from an increase in the exchange rate (or the USD rise). |
Related Definitions
Articles Of Interest
-
How To Use FX Options In Forex Trading
Currency options are another versatile tool for forex traders. Find out how to use them. -
Option Strategies For A Down Market
All investors should be aware that the best time to buy stocks is when the market is tanking, according to history. -
6 Asset Allocation Strategies That Work
Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right. -
American Vs. European Options
These two options have many similar characteristics, but it's the differences that are important. -
Pay Attention To The Proxy Statement
Don't overlook this overview of a company's well-being. -
How Risk Free Is The Risk-Free Rate Of Return?
This rate is rarely questioned - unless the economy falls into disarray. -
An Introduction To Gamma-Delta Neutral Option Spreads
Find the middle ground between conservative and high-risk option strategies. -
Shopping For A Financial Advisor
Finding your perfect advisor is as simple as shopping for a car. Read on to learn more. -
Nobel Winners Are Economic Prizes
Before you try to profit from their theories, you should learn about the creators themselves. -
The Options Premium
An options premium is the amount of money that investors pay for a call or put option. The two components that affect options pricing are the intrinsic value and time value. Matthew is interested ...
Free Annual Reports