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I am having confusion regarding currency option if you could clear it it would be really helpful.
for example if we have to make payement and the exercise price of the option is higher than spot we lapse the option. right? Then how we going to treat the payment in spot market e.g if we have to make payment of 43000000. we will convert 43 million using spot and if there is any under hege amount we will also convert it with spot rate ( or is it forward rate?) and we will add the premium cost and this will be equal to our total cost.The whole point about options is that they give you the choice of converting at the option rate or converting at whatever the spot rate happens to be.
If spot has moved in your favour, then you do not exercise the option and convert at spot.
If spot has moved against you then you exercise the option and effectively convert at the option rate.
In both cases the premium for the option is also payable.
It might be worth you watching my lecture on this website on options.
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