CURRENCY OPTION
MARKET
TWO TYPES

CURRENCY CALL OPTION

CURRENCY PUT OPTION
CALL OPTION

DEFINITION
RIGHT TO PURCHASE
SPECIFIC CURRENCY
SPECIFIC PRICE
SPECIFIC PERIOD
THE INTERNATINAL STANDARDS ORGANIZATION
THREE LETTER CODES FOR ALL CURRENCIES
USD : US Dollar
 GBA: Grade Britain Pound
 JPY: Japanese yen
 CAD: Canadian Dollar
 DEM: Deutsche marks
 NLG: Dutch Guilder
 FRF: French Franc
 ESP: Spanish Peseta
 INR: Indian Rupee









ITL: Italian Lira
SAR: Saudi Riyal
AUD: Australian $
EUR: Euro
IEP: Irish Pound (Punt)
CHF: Swish Franc
SEK: Swedish Croner
DKK: Danish kroner



On MARCH 31st 2006 British Pound Call Option sells for
the Following :
Spot rate $ 1.2735
No of units : 12500 GBP (IN ONE CONTRACT)
Currency Strike Price
June
Sept
Dec
 GBP
$1.15
13.80c 14.00c ----
$1.25
4.00 c
7.00 c ----
$1.35
0.20 c
2.65 c 4.20
 SUPPOSE U CHOOSE JUNE CALL OPTION

CONTRACT IS EXERCISED IN JUNE

IF IN JUNE SPOT GOES TO $ 1.234 = 1 GBP

CALCULATION :



@ Strike 12500 * 1.25 = $ 15625
Fees
12500 * 0.04 = $ 500
@ Spot 12500 *1.234 = $ 15425



TOTAL PAID
= $ 16125 (15625+500)
WITHOUT OPTION = $ 15425
LOSS
=$ 700
PAID
PAID
REC
TRADITIONAL & TRANSACTIONAL
OPTIONS

EUROPEAN OPTIONS

AMERICAN OPTIONS
Factors Affecting Call Option Prices

Level of existing spot price relative to strike price.

The higher the existing spot price relative to the strike price
the higher will be the option price

Length of time before the settlement date.

Potential variability of currency.

The greater the variability of the currency the greater the
chance that the spot rate will be above the strike price.
PUT OPTION

DEFINITION
RIGHT TO SELL
SPECIFIC CURRENCY
SPECIFIC PRICE
SPECIFIC PERIOD
Example



On May 31st 2005 British Pound Put Option sells for the
Following :
Spot rate $ 1.2735
No of units : 12500 GBP
Currency Strike Price
 GBP
$1.15

$1.25

$1.35

June
Sept
Dec
0.05c 1.20c
2.75
0.30c 4.35c
7.25
-------- -----------
IN SEPTEMBER

CALCULATION