Quantity-Adjusting Option - Quanto Option
The CME Nikkei 225 is an example of a quanto. It is a futures contract for which the underlying asset - in this case, the Nikkei 225 Stock Average Index - is settled in U.S. dollars, as opposed to Japanese yen.
Investors use quantos when they believe that a security will do well in another country but fear that country's currency will not. Thus, investors buy an option in the foreign stock while keeping the payout in their home currency.
Investment dictionary. Academic. 2012.
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