Find the Hedge Ratio for a Call Option on £10,000

question 61

Multiple Choice

Find the hedge ratio for a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 .
The current interest rates are i_€ = 3% and are i_£ = 4%.
Choose the answer closest to yours.

• A)5/9
• B)8/13
• C)2/3
• D)3/8
• E)None of the above

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Definitions:

Total Asset Turnover

This is a financial efficiency ratio that measures how well a company uses its assets to generate sales revenue.

Price-Earnings Ratio

A valuation metric indicating the ratio of a company's stock price to its earnings per share, used to evaluate the relative value of shares.

Return On Assets

A measure of a company's profitability, indicating how efficient it is at using its assets to generate earnings.

Statement Of Cash Flows

A report detailing how shifts in income and balance sheet figures impact cash and its equivalents.