A US-Based Investor Buys from You a Quanto Option in Which

question 25

Multiple Choice

A US-based investor buys from you a quanto option in which the payoffs from a euro-denominated call on a German company are converted back into US dollars at the fixed rate of $1.25/€.To hedge this transaction

• A)You must hedge both exchange rate and equity price risk.
• B)You must hedge equity price risk but there is no exchange rate risk.
• C)You must hedge exchange rate risk but there is no equity price risk.
• D)There is nothing you need to do.

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