Because the shipping date and price are dependent on the firm's commitment, the corporation will pick a foreign currency option over a forward contract when hedging a foreign currency firm commitment.
Why would a firm chose foreign currency over forward contract ?
For the purpose of exchanging currencies that aren't often traded on forex markets, future exchange contracts (FECs) are a unique kind of over-the-counter (OTC) foreign currency (forex) transaction. Minor currencies and currencies that are prohibited or otherwise unconvertible may be among them. A non-deliverable forward, or NDF, involves such a blocked currency and is referred to as an FEC.
In general, forward contracts are contracts between two parties that specify how they will exchange two different currencies at a future date. These transactions are meant to shield the buyer from changes in currency prices and normally take place on a date after the day when the spot contract settles.
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