Quantos

Quantos

Currency options with a guaranteed exchange rate that enable buyers who like an asset, German bonds for example, but not the asset's pricing currency, to arrange payment in a different currency for a fee.

Quanto Option

A cash-settled futures contract or other derivative in which the underlying asset is denominated in a currency other than the one in which it is settled. For example, two investors may enter into an agreement to buy/sell a futures contract on an index in which the index is in British pounds but the contract is settled in euros. The exchange rate at which the contract is settled is determined at the beginning of contract, protecting the investors from the foreign exchange risk that the currencies will adversely change in value.