Currency Option Contracts

then the option is said to be exercised. • Option writer: The option writer is the person or institution that sells the option. • Maturity Date: also call the Expiration Date or Expiry. • Option Premium: Is the option price. • Early Exercise: Refers to an American option being exercised before the maturity date. • Exercise: If the option holder decides to execute the option and buy or sell currency at the contract price. upfront.Terminology • Options Contract: An option is a contract that gives the holder the right (Not the Obligation) to Buy or sell currency in the future for a pre specified price. . This is the date when the option expires. it is what the buyer pays. for the right to Buy/Sell currency in the future at a set price.

4. European Option: Gives the option holder the right to buy/sell the currency at but not before the maturity date.Terminology • Strike Price: The FX rate specified in the contract that the option holder can buy or sell currency at. . Put Option: Gives the option holder the right to sell the specified currency at the strike price. American Option: Gives the option holder the right to buy/sell currency any time before or on the maturity date. on or before the maturity date 3. • Option Types: 1. 2. Call Option: Gives the holder the right to BUY the specified currency at the strike price on or before the maturity date.

Types of options Graphically American Call Options American Options Options Contracts American Put Options European Call Options European Options European Put Options .

• Out of the money: Refers to a call (put) option when the spot price is below (above) the strike price. .Terminology • In the money: Refers to a call (put) option when the spot price is above (below) the strike price. • At the money: Refer to a call or put when the strike price equals the spot price.

Payoff Diagrams for options Call Option At the money k Put Option Out of the money In the money At the money k In the money Out of the money .

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17 .Exam Distribution 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Mean = 75.14 Adjusted Mean = 82.

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