Explain the term a) Currency option and b) Currency swaps

Question

30 Jun 2022

Answer :

Word Count : 370

a) Currency option

A currency option (also known as a forex option) is a contract that gives the buyer the right, but not the obligation, to buy or sell a certain currency at a specified exchange rate on or before a specified date. For this right, a premium is paid to the seller.

Investors can hedge against foreign currency risk by purchasing a currency put or call. Currency options are derivatives based on underlying currency pairs. Trading currency options involves a wide variety of strategies available for use in forex markets. The strategy a trader may employ depends ____ _________ ____ _____ _____ ___ ______ ________ ____ ___.
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