Options: Contracts that give the right, but not the obligation, to exchange currency at a set rate before a certain date.

These are known as "Currency Options". They are a type of derivative contract that gives the holder the right, but not the obligation, to buy or sell a currency at a specified exchange rate on or before a specified date. Here's a step-by-step breakdown:

1. A currency option is a contract through which a seller offers a buyer the right, but not the obligation, to purchase or sell a specific currency at a predetermined exchange rate.

2. This predetermined rate is called the "strike price".

3. The buyer of the option pays a "premium" to the seller for this right.

4. If the exchange rate is favorable (i.e., if it is above the strike price for a call option, or below the strike price for a put option), the buyer can choose to exercise the option.

5. If the exchange rate is not favorable, the buyer can let the option expire worthless. The most the buyer can lose is the premium paid.

6. Currency options are typically used by businesses to hedge against fluctuations in exchange rates.