What are the disadvantages of hedging with currency options as opposed to forward contracts? A disadvantage of currency options is that they provide the right to buy or sell only a specified amount of a particular currency while a forward contract does not limit the amount of currency available for purchase or sale. A disadvantage of currency options is that a price (premium) is paid for the option itself while the only payment by a firm using a forward contract is the exchange of a currency as specified in the contract. A disadvantage of currency options is that they can be used only if the exercise price of a specified currency is lower than the spot rate of this currency while a forward contract can be used regardless of the spot rate of a currency.
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