An FX time option is a forward contract to exchange a pre-determined amount of a currency at a pre-determined strike K within a future time period [T1,T2]. It is called a time option because Of the American-style exercise feature. The holder can choose in this period to exercise parts of the total amount, but the total amount and no more must be exercised before or at time T2.
We take the EUR/USD as the target exchange rate. A long position in a EUR time option receives EUR at the exercise dates and pays USD. A short position will be paying EUR and receiving USD.
Question Assume the trader is offered instead a plain vanilla European forward, where he is required to exchange the full amount for the strike price at a fixed future date. In which situations if any, does he prefer: • a forward with expiry T1 (When compared to the time option)? • a forward with expiry T2 (When compared to the time option)?