Currency options and forward contract as hedging tool
State some of the advantages of currency options contract as a hedging tool as compared with the forward contract?
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Main advantage of using the options contracts for hedging is that the hedger may decide whether to exercise the options upon observing the realized future exchange rate. Options thus provide a hedge against the ex post regret that forward hedger could have to suffer. Hedgers may eliminate the downside risk while retaining the upside potential.
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