A contract that provides the buyer of the option the right but not the obligation to buy or sell one currency amount at a specified exchange rate on a specified date.
It acts as an insurance by allowing you to benefit from favourable exchange rate movements while protecting you from the effects of adverse movements.
It offers flexibility in that, an agreed fixed rate at future date can be used if rates move unfavourably (option is exercised) or you can use the prevailing spot rate for that date if exchange rates moves favourably.
The buyer of the option pays a premium at outset, which is non refundable regardless of wether the option is exercised. What is the available (minimum) amount?
The type of option offered by NBC is the Vanilla option.
||Receive more TZS from exchanging the foreign currency amount
||YES: if spot exchange rate is greater than strike rate (agreed rate)
||Exchange less TZS to obtain foreign currency amount
||YES: if spot exchange rate is less than strike rate.
- Exporter / importer informs the bank the currency pair, strike rate, expiry date and face value amount.
- American (before or after) or European (exercised at expiry date only) style options?