An instrument or security whose performance depends at least on two different currencies (i.e., two different markets: domestic and foreign). This type of derivative allows investors to manage both interest rate and foreign exchange risks. For example, a foreign forward cap (floor) is a cross-currency structure that represents a series of caplets (floorlets), each of which serves as a call (put) option on a foreign forward LIBOR rate, respectively.

Similarly, a quanto is a cross-currency derivative, mostly cash-settled futures and options that require no physical delivery of the underlying asset. This derivative is settled at a fixed rate of exchange and thus protects its holders from potential fluctuations in that rate. If an investor of one country invests in the assets traded in the exchange of another country then he is exposed to the risk of two types of fluctuations: asset price fluctuations in the foreign country, and fluctuations in the exchange rate of the currencies of the two countries. Principally, a quanto helps protect its holders from such fluctuations because at the time of option exercising, its intrinsic value will be converted from foreign currency to domestic one at a specific rate.