A Portfolio of a Long Dollar Call and a Short

question 8

Multiple Choice

A portfolio of a long dollar call and a short dollar put at an exercise price K^€/$is equivalent to ______.

• A) a long euro call and a short euro put
• B) a long forward contract to buy dollars
• C) a long forward contract to sell dollars
• D) a short dollar call and a long dollar put
• E) a headache waiting to happen

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Definitions:

Rationality Limitations

Constraints on an individual's ability to think and make decisions in a logical and clear-headed manner.

Bounded Rationality

Refers to the concept that in decision-making, an individual's rationality is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision.

Complete Information

A situation in which all participants have access to all relevant information needed to make informed decisions.

Course Of Action

A plan or methodology intended to achieve a specific goal or resolve a problem.