A hedging tool where a series of spot rate fixings during the life of an option are used to calculate an average rate. If the average rate is below the strike price, then the bank must settle the difference with the customer. Otherwise, the the option expires worthless with no payment made. Average rate options are generally suited for those who need protection against adverse currency moves that still wish to retain full upside potential. Also known as an Asian Option.
Tags: hedging tool series fixings option average rate price settle customer
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