If the Hedge Ratio for a Stock Call Is 0

question 43

Multiple Choice

If the hedge ratio for a stock call is 0.70, the hedge ratio for a put with the same expiration date and exercise price as the call would be

• A)0.70.
• B)0.30.
• C)-0.70.
• D)-0.30.

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Definitions:

Cash-flow Hedge

A financial strategy used to manage risk associated with variability in cash flows due to changes in exchange rates, interest rates, or commodity prices, by using derivatives.

Net Exchange Gain

The profit from exchanging one currency for another after accounting for currency fluctuations and transaction costs.

Forward Contract

A tailor-made agreement between two entities to purchase or sell a specific asset at a predetermined price on a future date.

Forward Contract

A financial contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today, not traded on an exchange.