foreign exchange options

Foreign exchange options are financial contracts that give the buyer the right, but not the obligation, to buy or sell a specific amount of currency at a predetermined price within a set period. They are used by businesses and investors to hedge against currency fluctuations or to speculate on future currency movements. If the market moves favorably, the buyer can execute the option; if not, they can choose not to, limiting potential losses to the option premium paid. This flexibility helps manage risk in international transactions and investments.