Options

An option gives the rise to convert at a fixed rate (on the date of the transaction they therefore have the choice between converting at spot or using the option to convert at the fixed rate. Given that they are receiving Euros they therefore need the right to sell Euros at a fixed rate. Have the right to sell is a put option. This is all explained in my lecture on foreign exchange risk management. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.