A currency option that is similar to an American currency option except that it must be exercised on the expiration date lest it expires worthless. Therefore, it doesn’t offer flexibility to the holder who will otherwise have to wait until expiration date in order to trade (buy or sell) the underlying currency. However, some firms might purchase such an option to hedge future foreign exchange cash flows and so they will not be under pressure to have options that can be exercised before the expiration date (i.e., American currency options).

The lesser flexibility of European currency options, in contrast with American-style options, may justify a lower premium on the former than on the latter, with both having similar characteristics.