A major disadvantage of forward contracts from a customer is point of view is that , while the fixed exchange rate guards against adverse currency movements ,the customer is not able to take advantage of favorable movements .A currency option contract ,however,allow this .
The holder of an option contract has the right ,but not the obligation,to buy or sell a specified a mount of currency at an agreed rate within a specified period .A fee is paid for this right.
Monday, March 23, 2009
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