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Your Mortgage Magazine |
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Your Mortgage is Australia’s foremost consumer finance publication dealing with Australian home and investment loans. Published bi-monthly, Your Mortgage Magazine is now bigger and better with a new 32 page Home Buyer's Guide section. Our features, news i |
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A Complete Guide to Trading Profits |
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The Odyssey of an Average Investor |
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CHOICE Money and Rights |
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Confused by financial products on the market? Been burnt because you didn’t know your rights? Our newest magazine CHOICE Money & Rights will guide you through the complicated money maze! Down-to-earth and practical, you’ll get all the latest information o |
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SMSF |
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The first dedicated publication for professionals advising on self managed superannuation funds, whether they are accountants, lawyers or advisers. The magazine aims to cover the realm of issues confronting the industry with news, features and regular con |
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Investor Weekly |
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Launched in 1994, and with its coverage broadened recently to include retail as well as institutional news, Investor Weekly provides coverage across superannuation, funds management, masterfunds, dealer groups, administration, custody and investment manag |
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Currency Options
By: Steve Wilcott
One of the ways to hedge a FOREX transaction is with what is called a currency
option. A currency option gives the holder the right to buy or sell a specified
currency during a specific time period, but the holder is not obligated to buy
or sell.
Call options and Put options are the two types of currency options. With a call
option the holder has the right to buy currency. A Put option gives the holder
the right to sell.
The worth of a call or put option at time of expiration is equal to the value
realized by the holder in exercising the option. If the holder gains nothing,
the option is worthless. The intrinsic value of the option is the value when the
option is bought or sold.
Strike priced is what drives the intrinsic value of an option. A call option has
an intrinsic value if the current price is above the strike price while a put
option has intrinsic value if the spot price is below the strike price.
The spot and time value are taken into account when figuring out an option
price. Time value is measured using the expected market conditions and the
difference in interest rate between the two currencies. The price charged for
options must be kept low enough to attract buyers and high enough to attract
writers.
FOREX markets use currency options to minimize risks against moves in the
market. When you purchase an option any losses are limited to the cost of the
option. There are many types of options available to be used as hedges. To ward
against loss from fluctuations in foreign exchange markets some companies use
these.
A Digital option pays at expiration of the option. Traders generally use this
option after much consideration regarding market movement and payoff amount.
About the Author:
This article courtesy of http://www.forex-shopper.com |
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