It is January 14 and Enterprise USA has 35 million payables in Norwegian kron in 96 days. The treasurer is concerned about appreciation of the kron. Buying an ordinary call can mitigate the firm’s exposure to foreign exchange risk. However, buying down-and-out call options will be less expensive, as the maturity of the DAO is less than the maturity of the ordinary call option.

For example, the corporate treasurer for Enterprise may buy this option at a strike price of $.14/kron and the lower barrier of $.11/kron. Once the lower barrier is reached the option expires, leaving the treasurer exposed in the event the kron appreciates over the strike price of $.14/kron at the maturity of the payables.