What is the average rate?
The average rate is an option contract based on currency rates for a period of time. This is contrary to most currency options that are based on the price on a particular date. The main use of the average rate option is to minimize the risk of loss caused by currency fluctuations. The first party pays the other side of a fixed fee or bonus. In return for this payment, the first party is correct, but not an obligation to replace in the future. Naturally, it will only do this if the circumstances mean that the stock exchange is in favor. When this date comes, the Party with the possibility of exchanging usually looks at the real exchange rate on the market to decide whether it is worth applying this option to make immediate profit. Some more complicated versions of currency options allow the first page to exercise the possibility at any time up to the agreed date, not just the date itself. With the fact that this increases chances, the first party will be able to apply this option at a favorable rate, the premium payment will usually be on this type of agreementŠešší.
Not all people or organizations that use currency options do so as a form of speculation. Entrepreneurship deals with overseas clients will often use a currency option as a form of securing. For example, if a company delivers an overseas client order and is scheduled to pay for six months in a foreign currency, it will not be certain how much this money will actually be in the domestic currency when they are accepted. In the meantime, the use of a currency option can protect business from a currency rate that moves in an unfavorable way. Thepodnikání will consider a bonus at a price that is worth paying for the elimination of uncertainty and risks.
The average rate option works a little more complicated and is usually done between the company and the bank. Under the average rate option, the company pays premiums and determines the amount of money, exchange rate and future date. On this future date, the bank calculates the average actual exchange rate in o oBenses of contracts. If the actual rate is lower than the specified rate, the bank pays the company. This amount is equivalent to the difference between the average and the determined rate should be for the specified amount.
Although the concept of the possibility of average rate is more complicated, it seems easier from the point of view of business. This is because there is no need to buy or sell any currency: the company pays the bonus, and then at the end of the period gets cash payment if the exchange rate was less than ex or no money changed if the exchange rate was as expected or higher. In fact, this option simply acts as a fuse and pays off if the exchange rates are undesirable low.