OPTION CONTRACTS

OPTIONS

Increasingly, businesses are finding success in international markets. At the same time, international payments and foreign currency exchange can increase your company's exposure to rapidly fluctuating economic conditions and their inherent risk; volatile currency markets can raise expenses, diminish profits, and make accurate long term planning virtually impossible. Specific risk management tools, such as Currency Options, will help you to properly manage this risk.

Currency Options provide the holder with unlimited protection against adverse spot movements so that your position is fully hedged. By having a fixed minimum target rate in place, your company will know the absolute maximum cost for a given transaction. At the same time, you are able take advantage of positive changes in market exchange rates.

Options can provide numerous advantages to many companies. Especially to those who:

• Translate offshore revenues and investment income into home currency
• Meet payment obligations for foreign vendors, employees and creditors
• Must ensure offshore operations are efficiently funded in local currency
• Export and/or Import

Currency Options may be used alone or in combination with other hedging tools such as Forward Contracts and Market Orders to offer a company a powerful risk management strategy.

Some common types of Currency Options include:

• Vanilla Options - Exchange currency at a predetermined rate and benefit from favourable market shifts. The risk taken is limited to the premium paid.
• Range Forward - Establish both a worst case rate and a best case rate. Know from the outset the range in which you will be able to exchange your currency.
• Forward Extra - Take advantage of favourable market rates up to a preset 'trigger level'. If the market is unfavourable, you are still protected by a predetermined transaction rate.
• Bonus Forward - Establish 'trigger rates' so that wherever the market is at expiry, your position is completely hedged against movement within your predetermined range
• Participating Forward - Establish 'trigger rates' so that wherever the market is at expiry, your position is completely hedged against movement within your predetermined range
• Target Forward - Take advantage of a Target Forward, where the call and the put have the same strike and expiry date but different notional amounts, at a price that is more favorable than an equivalent forward rate.
• Convertible Options - Maintain a position that is fully hedged but also take advantage of favourable market movements if the market trades below a pre-set trigger level.

Alongside the presented currency options, Currency House also provides Non-Deliverable Options (NDOs). Like a basic option, an NDO gives the holder the right, but not the obligation, to buy (via Call Options) or sell( via Put Options) a specific amount of foreign currency at a specified rate (strike price), on a predetermined expiry date. Like an NDF, an NDO serves the purpose of being like an insurance policy against unfavourable market trends, and profit and loss is adjusted at time of expiry. But unlike an NDF, an NDO presents a right and not an obligation to exercise the derivative.

At Currency House, we offer a large variety of custom tailored products that fit your business' size, risk appetite, and strategies. When necessary, more sophisticated arrangements can be structured according to the needs of your organization, which can allow your organization to:

• Reduce or potentially eliminate the upfront premium
• Understand the worst-case scenario
• Manage costs on products and services purchased overseas
• Protect profits on products and services sold overseas
• Potential to participate in favourable currency movements
• Etc...