A foreign exchange option is:
A) the right to engage in buying or selling on the spot market.
B) the right to purchase or sell foreign currency at a specified price on a specified date in the future.
C) when the price of foreign currency exceeds the spot rate.
D) when a speculator must decide whether to move into the market.

Question

Quizplus · Accepted Answer

A foreign exchange option is the right, but not the obligation, to purchase or sell a specified amount of foreign currency at a pre-determined price (strike price) on a specific date in the future. This gives the holder of the option the flexibility to potentially benefit from favorable exchange rate movements without being obligated to transact at the strike price.

A Foreign Exchange Option Is