I have a question regarding average rate options.Suppose I want to sell EURUSD on 3m forward. I could1) Do a 3m forward contract2) Do a 3m synthetic forward through VANILLA optionsMy first question is: If I buy and sell options at the same strike, will the volatility bid-offer spread result in a less favourable exchange rate for the synthetic forward compared to the forward?Furthermore, suppose I do a 3m forward compared to a synthetic 3m forward with AVERAGE RATE options. How will that affect the effective forward rate I get? My bottom line question is what kind of risk I take if i do a forward contract with delivery in 5 years and then after 2 years recycle the forward into a average rate forward.Any help would be highly appreciated.Many thanks!

I guess you are asking how to choose between Asian option and Average Price Forward in long term hedge.what a book will tell you: credit risk: forward-specific liquidity issue: your own liquidity issue. No margin for forward but yes for option.There are then certain practical issues to consider: comission: or if you wanna call it a spread for option. none for forward (but futures yes) nearby mispricing: the near term forward rate mispricing calendar mispricing(rollover cost): when you rollover your forward contract, there might be a mis priced forward rate that you could take advantage of or be charged for. liquidity shortfall : in case of large volume trade, this makes a big difference. Choose a more liquid one when you establish position and wisely execise your order.conclusion: the first trade off is credit risk v.s. margin requirement. If you are indifferent, consider the other cost listed then.