4. An important feature of a is that the holder has the right, but not the obligation, to buy or sell currency. (a) swap (b) foreign exchange arbitrage (c) foreign exchange option (d) futures market contract

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Jacoby Mcclain

Business

10 December, 14:29

4. An important feature of a is that the holder has the right, but not the obligation, to buy or sell currency. (a) swap (b) foreign exchange arbitrage (c) foreign exchange option (d) futures market contract

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Waddles · Answer 1

(c) Foreign exchange option

Explanation:

Derivatives refer to those securities whose value is derived from the underlying asset. Examples being currency derivatives, commodity derivatives, etc.

Foreign exchange option refers to a derivative instrument whereby the holder has the right but not the obligation to buy or sell a currency at a future date at a predetermined rate fixed today.

In a call option, the holder has the right but not the obligation to buy a currency while in a put option the holder has the right but not the obligation to sell a currency.

The predetermined price at which the holder can buy or sell a currency is referred to as the strike price or exercise price.