Abstract
Foreign currency options are one of the significant developments in the financial derivative markets. The currency options do not substitute the forward or futures contracts but use as a more versatile financial derivative. It can offer the opportunities and advantages to those seeking protection from financial distress resulting from the movement of foreign exchange (FX) rate. Over the past four decades, the currency options employ as a hedging tool and for speculative purposes has significantly grown into a majority of foreign exchange activity. It can be traded on a regulated exchange where they are sold in a standardised form by managing the underlying currency contract size, strike price, and expiration date. However, over-the-counter (OTC) options are allowed for customisation of the terms of the options contract for contract size, strike price, and date of maturity. This chapter discusses currency options’ mechanics, development of currency options market, research objectives and hypotheses, and thesis structure.
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