Quanto: Difference between revisions
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[[Quanto]]s, or "[[quantity adjusting option]]s", are {{tag|Derivatives}} in which the underlying exposure is denominated in one [[currency]], but the instrument itself is settled by reference to another currency at a fixed rate determined at the outset of the transaction. Quantos accordingly shield the purchaser from exchange rate fluctuations. | |||
Essentially, a quanto has an embedded currency forward with a variable notional amount. It is that variable notional amount that give the quantity adjusting option its name. | Essentially, a quanto has an embedded currency forward with a variable notional amount. It is that variable notional amount that give the quantity adjusting option its name. | ||
Revision as of 12:15, 16 July 2013
Quantos, or "quantity adjusting options", are Derivatives in which the underlying exposure is denominated in one currency, but the instrument itself is settled by reference to another currency at a fixed rate determined at the outset of the transaction. Quantos accordingly shield the purchaser from exchange rate fluctuations.
Essentially, a quanto has an embedded currency forward with a variable notional amount. It is that variable notional amount that give the quantity adjusting option its name.