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 ?
7, few tax practitioners would have suggested that over-the-counter (OTC) foreign currency options on "major" currencies should be accorded Sec.
Topics stressed are model building, inference, option pricing, and realized variation, including process, exchange rates, volatility modeling, Bayesian analysis, and foreign currency options.
Risk strategies: Monsanto handles market risk related to interest foreign currency rates and commodity prices by engaging in various derivative transactions, including foreign currency forward exchange contracts and foreign currency options
Judged by the impact of volatility on the price of foreign currency options -- important instruments for hedging foreign currency exposure -- those cost savings could be significant (see Box VIII.2).
Some of the products available from the Commonwealth Bank include Forward Exchange Contracts, a 24-hour Market Watch service, Foreign Currency Options, or Flexible Forward Contracts.
Our paper shows that Basle's current simplified model for foreign currency options does not systematically relate capital requirements to market risk.
Dunn apparently did engage in many such transactions by trading in exotic positions such as strangles,(21) by "contract[ing] directly with international banks and others without making use of any regulated exchange or board of trade."(22) In other words, Dunn engaged in foreign currency options in the off-exchange or OTC markets.(23) Dunn made these trades using the names "of [the] defendants, and no participations or options were sold directly to investors."(24)
Foreign currency options provide the protection of a "worst case" rate, while allowing the option holder to benefit from market movements in their favor.
TABULAR DATA OMITTED This would be a significant roll-back of the current rules, which permit deferrals of gains and losses on qualifying hedges involving interest rate and commodity futures (SFAS 80) and on purchased foreign currency options (EITF Issue No.
Taxpayers identify transactions as hedges to escape mark-to-market treatment that applies to futures contracts, most exchange options and foreign currency options. Taxpayers also identify transactions as hedges to escape the various loss deferral rules that apply to straddle transactions.

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