The right, but not the obligation, to sell a specified amount of one currency in exchange for another currency at a rate agreed when the option is bought (strike rate), on an agreed settlement date.
Offers full protection against unfavourable changes in foreign currency values. You can benefit from a favourable exchange rate movement by transacting at the prevailing spot rate.
- Protection against the direct impact of unfavourable changes in foreign currency values.
- Determine and budget your cash flows.
- The opportunity to benefit from favourable foreign exchange movements.
Points to consider:
- A premium is payable
- The strike rate may be less favourable than the prevailing spot rate at the time you buy the option.
Put Option could be suitable:
- If you're an Australian importer, or a business with payments in a foreign currency.
- If you're a business borrower with loans quoted in foreign currencies.
- If you’re trying to protect from a future foreign exchange risk and are unsure on the likelihood of the risk coming to fruition.