This article is one of a series of background articles for the general reader explaining how different financial markets and other parts of the financial system work. It outlines the basic mechanics of currency options and the theory of options pricing and presents data on the growth of the market in currency options. It also describes some of the innovative variations on the basic currency option. As the article seeks to explain a complex area in a straightforward way, the descriptions of some of the concepts involved have been greatly simplified.
The market in currency options