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30 October, 06:16

4. An important feature of a is that the holder has the right, but not the obligation, to buy or sell currency. (a) swap (b) foreign exchange arbitrage (c) foreign exchange option (d) futures market contract

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  1. 30 October, 08:02
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    (c) Foreign exchange option

    Explanation:

    Derivatives refer to those securities whose value is derived from the underlying asset. Examples being currency derivatives, commodity derivatives, etc.

    Foreign exchange option refers to a derivative instrument whereby the holder has the right but not the obligation to buy or sell a currency at a future date at a predetermined rate fixed today.

    In a call option, the holder has the right but not the obligation to buy a currency while in a put option the holder has the right but not the obligation to sell a currency.

    The predetermined price at which the holder can buy or sell a currency is referred to as the strike price or exercise price.
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