Product description
A transaction featuring an option to buy or sell a foreign currency - depending on your cash flow, 4 alternatives of FX options may be used:
- you can buy an option to sell a foreign currency at a future date using an agreed exchange rate and you pay a premium for the execution of the deal (depending on the current situation you can either use the option or sell your funds at more favorable market conditions)
- you can buy an option to buy a foreign currency at a future date using an agreed exchange rate and you pay a premium for the execution of the deal (depending on the current situation you can either use the option or purchase the required volume of the foreign currency at more favorable market conditions)
- you sell the option ⇒ you are obliged to sell the foreign currency for the agreed exchange rate at a future date and you collect a premium for the execution of the deal (the Bank may or may not use its option right depending on the current situation, you keep the premium for the execution of the deal)
- you sell the option ⇒ you are obliged to buy the foreign currency for the agreed exchange rate at a future date and you collect a premium for the execution of the deal (the Bank may or may not use its option right depending on the current situation, you keep the premium for the execution of the deal)
Each of the options may take two forms - the so-called European or American option:
- an European option may only be exercised on the agreed expiration date
- an American option may be exercised at any time prior to and including its expiration date
A barrier option further depends on whether the underlying exchange rate reaches (Knock-In) or fails to reach (Knock-Out) a pre-specified level.
Typically, FX options are not set up individually, but collectively for a number of expiration dates at a time.
Terms of service
- Accounts in the relevant currencies.
- Minimum notional amount per expiration is CZK 3 million, or an equivalent in foreign currencies.
- Maturity - no minimum is required, typical maximum up to 5 years.
- Traded currencies are limited by the scope of the foreign exchange list of LBBW Bank CZ a.s.
- Master Agreement on Treasury Trades.
- Credit line designed for Treasury transactions.
