Concept: Exchange rate management options
Topic: Economy, Paper III
Category: International Monetary Policy
Related News: IE, Jan 25
CNA mentions: 1(Jan 25)
Exchange rate management options
A foreign exchange option, alternatively called currency option or FX option, is a derivative financial instrument which gives to the owner the right though not a compulsion or obligation to exchange currency in one denomination to another currency on an agreed upon date and at an agreed upon rate. The FX options market would be the largest, deepest and the most liquid market for options. Most of the trading is OTC or over the counter and is not very regulated. But some of the trading takes place on exchanges such as the Philadelphia Stock Exchange, or the International Securities Exchange or the Chicago Mercantile Exchange for future contracts options.