Quanto: Difference between revisions
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A [[quanto]], or "[[quantity adjusting option]]", is a {{ | A [[quanto]], or "[[quantity adjusting option]]", is a {{t2|Derivatives|derivative}} 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 12:13, 16 July 2013
A quanto, or "quantity adjusting option", is a derivative 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.