A currency futures option amounts to a derivative on a derivative. Why would something like that exist?
A)For some assets, the futures contract can have lower transactions costs and greater liquidity than the underlying asset.
B)Tax consequences matter as well, and for some users an option contract on a future is more tax efficient.
C)Transactions costs and liquidity.
D)All of the above

Question

Quizplus · Accepted Answer

All of the above reasons are valid for the existence of currency futures options. The futures contract may offer lower transaction costs and greater liquidity than the underlying currency, making it a more attractive choice for some investors. Additionally, tax consequences can play a role in determining the most efficient way to invest, and an option contract on a future may offer advantages in this regard.

A Currency Futures Option Amounts to a Derivative on a Derivative