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.

---

Definitions:

Sales Promotion Tool

Marketing strategies or devices designed to temporarily boost sales or attract customer interest.

Rebate

A refund given to consumers after they've purchased an item, often used as an incentive for sales.

Sales Promotion Technique

A marketing strategy designed to increase sales in the short term, often through discounts, coupons, or special offers.

Sampling

A process in statistics and research where a subset of individuals or items from a larger population is selected for analysis.