An option that combines the features of both currency options and basket options. By definition, it is a put or a call on a collection (basket) of currencies treated together as a portfolio. A basket currency option gives the buyer the right, without the obligation, to receive/ buy (if a basket currency call option) or sell (if a basket currency put option) certain currencies in exchange for a base currency, either at the spot market rate or at a predetermined rate of exchange.

This kind of options is generally used by multinational corporations which characteristically have multicurrency cash flows. It is cheaper to buy an option or warrant on a basket of currencies than to buy individual options on each of the currencies making up the basket.

By nature, a basket option implies an all-or-none (AON) exercise, that is, the holder cannot exercise only on part of the portfolio of underlying currencies. Exercise has to take place on the entire collection at the same time.

A basket currency option can be settled in either fashion: cash settlement or physical settlement.