Explain the difference between foreign currency options and forwards. Explain when either might be most appropriately...

Question

Question

Explain the difference between foreign currency options and forwards. Explain when either might be most appropriately used.

Answer 1

Answer #1

Foreign currency call option gives the right but not the obligation to buy the foreign currency at a prefixed rate.

Foreign currency forward has to be exercised conpulsorily at the time of expiry.

If the foreign currency transaction is certain, use forward. Otherwise use option.

Answer 2

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