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Options

Options, like futures, came into existence to help institutions and companies cope with increased fluctuations in the foreign exchange markets. Investors who buy options have the right, if they choose, to buy a specific amount of currency at a set price on or before a specific date. At its most fundamental level, an option is a choice.

Options are an effective hedging device against currency fluctuations. They allow a buyer to lock in an exchange rate and then use the option only if the situation warrants it. The buyer, however, must pay a premium at the outset for an option.


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