Average Rate Option - ARO

The average rate option is a type of European option. It's used to average a currency rate to determine the exercise price at expiration. This rate can be used for daily, weekly or monthly timeframes.

This type of option is often used by companies who receive payments in currencies different from their own. The currency rate is averaged out over a period to calculate the exercise price at expiration. This way, currency changes don't affect the payments as greatly and it's a bit easier to determine what the final value will be.