FX Option
Foreign exchange options (also known as FX, forex or currency options) are contracts where the buyer has the right, but not the obligation, to exchange currency on a certain future date at the exchange rate and in the amount fixed at the time of entering into transaction. Option transactions are entered into as a hedge against an unfavourable probable future event. The buyer pays the seller a premium to have such an opportunity.
Types of FX Options
- Call option entitles the holder to buy the underlying currency at the rate fixed in the transaction, thus hedging against the risk of a rise in exchange rate;
- Put option entitles the holder to sell the underlying currency at the rate fixed in the transaction, thus hedging against the risk of a fall in exchange rate.
Possibilities:
- safeguarding the company against unfavourable exchange rate fluctuations and potential loss;
- benefiting from favourable exchange rate fluctuations;
- locking in the maximum expenses and the bid price;
- selecting top or bottom limit for specific exchange rates.
Risks associated with FX option transactions:
- the paid premium will not be refunded if the option is not exercised during the period covered by the transaction;
- in case of early termination of the transaction, the customer may incur expenses or earn income, the size of which depends on forex market situation then prevailing.
Collateral:
The need for collateral is assessed on case-by-case basis, depending on the duration of transaction and currencies involved in the transaction.
Requirements:
- holding a current account with Swedbank,
- signing the Agreement for Financial Market Transactions with the bank.
 
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