Glossary
Navigate the complex world of currency management with our comprehensive dictionary of financial terms and definitions.
Currency Call Option
A currency call option is a financial derivative instrument that gives the holder (buyer) the right —but not the obligation — to buy the contracted currency at a set price or exchange rate (the ‘strike price’), on a predetermined expiration date. The seller of the call option must fulfill the contract if the buyer so desires Because the currency put option has value, the buyer must pay the seller a premium in exchange for the right to exercise the option. An ‘American’ put option can be exercised at any time up to the expiration date; a ‘European’ put option can be exercised only at maturity. When hedging regular foreign currency inflows and outflows, forward contracts are more widely used than currency call options. However, currency call currency options can be an efficient tool when contingent business events are hedged.