FX Option is an agreement between the bank and client which gives the client the right, but not the obligation to execute FX exchange transaction at predetermined terms. Specifically, parties agree on the following: amount to be converted in the future (Notional), exchange rate (strike price) and settlement date at which conversion can take place. If, however, the prevailing market rates on the value date will be preferential for the client compared to the strike price, client has the right to keep the option unexercised.
There are two types of options- option to buy the notional currency ("call option") and option to sell the notional currency ("Put option")
"Call" option gives the option-holder the right to buy the notional currency at the strike rate on the settlement date
"Put" option accordingly gives the option-holder the right to sell the notional on the settlement date
Who may use FX options
Compared to FX Swaps and forwards,where nothing is paid at the initiation of the contract, FX options require the upfront payment of the option premium, whether the option will be exercised in the future or not
The size of the premium is calculated individually depending on the transaction size, prevailing exchange rate, volatility, term, etc.
Below are the indicative premiums for the given strikes and maturities:
Note: Prices are indicative and subject to additional negotiation with Treasury.