An Italian importer will be paid $1 million in three months (March). He must decide whether to sell $1 million forward or to buy currency options for that amount. The current market prices are as follows:
Exchange rates: Spot $/€ ? 1.10 Three-month forward: $/€ ? 1.11 Call euro March 110 U.S. cents: 1.5 U.S. cents per €. Put euro March 110 U.S. cents: 1.0 U.S. cents per €.
What are the differences between the strategies of selling currency forward and buying currency options?