Foreign Exchange Option
Foreign Exchange Option : A foreign exchange option is an arrangement in which a purchaser and a seller of foreign currencies agree on a specific rate of exchange at a future date. The purchaser may choose to exercise or pass up the option -- thus setting a limit on unfavorable exchange rates. The seller is given a fee for tendering the option. Purchasers may exercise the option at any time -- in the European option, currency exchange is made on the originally established date; in the American option, exchange is made within a couple of days of the purchaser exercising the option. See: Forward Exchange Rate
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