An FX Knock-in Option contract allows the buyer to purchase a foreign currency on a future date, and at a pre-defined rate that’s better than the regular forward rate, on condition that the exchange rate hits the Knock-in level at any time during the contract.
Due to their complex character, knock-in options are not the most suitable products for corporate treasurers wishing to protect their profits from FX risks. There are more efficient alternatives like Dynamic Hedging.
Knock-in options include the following elements:
|Position at Maturity:||EUR/USD short|
|Knock-in Option Rate:||0.9150|
Knock in options are speculative products, as they do not provide guaranteed protection from currency volatility. If the Knock-in level is not attained, the option will not be activated and the buyer will remain exposed to currency volatility.