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Options

Options

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Published by: asifanis on Jun 09, 2010
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10/27/2011

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OptionsOptionsThe Upside Without DownsideThe Upside Without Downside
Prof Mahesh KumarAmity Business Schoolprofmaheshkumar@rediffmail.com
 
What is an option?
An option confers on the buyer the eligibility tobuy or sell a sum of the foreign currency at apre determined rate on a future date withoutan obligation to do so.
On the due date the buyer of the option mayelect to buy/ sell as per his entitlement or hemay choose to let it go unused.
Either of the decision is binding on the seller,who has no discretion.
 
F
eatures of Options Contract
1)1) PartiesParties: There are two parties to option contract-
the option buyer and the optionseller 
.The option buyer is the holder of theright under the contract either to buy or sellan asset by certain date for a certain price.Normally it would be exporter or importer orcorporate treasurer who would be buying theoptions. The option seller also known as thewriter of the option makes the right availableto the buyer. Normally the writer of theoptions will be the bank which provides theinstrument to its customers.

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