federal bank presence treasury knowledge series. What is currency option? Currency options provide an opportunity for investors to take a view on exchange rate and use it for hedging their exposures. Currency option is a derivative contract that gives the buyer the right but not the obligation to buy or sell the currency at a stated date and at a predetermined price. The seller of the contract has the obligation to honor the contract when the contract is exercised. There are two types of currency options: call and put. A call option gives the right to buy, and a put option gives the right to sell. For example, ABC Company Limited, an importer, has to make a payment six months from now. He books a call option with a strike price of rupees 75, delivery on a particular date, and pays a premium of rupees X for the same. On the payment date, if the USD/INR is at Rs 73, he does not exercise the option and takes the market rate for his transaction. On the payment date, if USD/INR is at

rupees 77. He exercises his option and makes the payment in rupees 75. Key features and benefits: Buyer of a call put option has unlimited profit potential, whereas the loss is only limited to the premium paid. Professional structuring desk to help you out with customized hedging solutions or products based on your business requirement. Smart hedge solutions combining options and forwards. Knowledge is power. Empower yourself with the latest information. Federal Bank, your perfect banking partner.

What is Currency option?

What is Currency option?