Basket options
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Packages that involve the exchange of more than two currencies against a base currency at expiration. The basket option buyer purchases the right, but not the obligation, to receive designated currencies in exchange for a base currency, either at the prevailing foreign exchange market rate or at a prearranged rate of exchange. Multinational corporations with multicurrency cash flows frequently use basket options because it is generally cheaper to buy an option on a basket of currencies than to buy individual options on each of the currencies that make up the basket. Copyright © 2005, Campbell R. Harvey. All Worldwide Rights Reserved. Do not reproduce without explicit permission.
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