Currency option

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Currency option

An option to buy or sell a foreign currency.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Currency Option

An option contract in which the underlying asset is a foreign currency. The option gives the holder the right but not the obligation to buy (for a call) or sell (for a put) a set amount of the currency at a certain exchange rate on or before the expiration date. They are largely used when international corporations wish to hedge against the possibility of adverse movements in foreign exchange rates.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
The petitioner, Michael Napoliello, entered into two pairs of offsetting long and short foreign currency option contracts held by an LLC of which he was the sole member.
dollar receivables or payables is a type of transaction risk which can be hedged using forward foreign exchange or foreign currency option contracts. A forward contract is a mutually binding agreement between two parties to exchange a certain amount of one currency for a specific amount of another currency at a date or range of dates in the future.
* Notice 2003-81 offsetting foreign currency option contracts: A party claims a loss on the assignment of a Sec.
No election is needed for currency forwards or over-the-counter currency option contracts; they automatically receive ordinary gain or loss treatment (which matches the retailer's profit on product sales).