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Which is true of foreign currency forward contracts and foreign currency options? Foreign currency forward contracts...

Which is true of foreign currency forward contracts and foreign currency options? Foreign currency forward contracts Foreign currency options ? Question 5 options: ?Requires up-front fee Requires up-front fee ?Party may “walk” if “out of the money” Party may “walk” if “out of the money” ?Requires no up-front fee Party may “walk” if “out of the money” Represents a right rather than a legal obligation Requires up-front fee

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Answer #1

Foreign Currency Forward Contracts are contracts, a legal obligation, to buy or sell a specific lot of Foreign Currency for Another Currency at a specific due date in future.

They do not require Upfront Fee, they represent a contract and legal obligation you cannot walk out of.

Whereas Foreign Currency Options are exactly that, an option to buy or sell a specific lot of Foreign currency for another currency at a future settlement date.

They are not a legal obligation, and when you are out of money, you need not exercise (walk out) and they require an upfront fee.

Good luck

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