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:

Mnemonic Device

A memory aid, such as a pattern, acronym, or visual image, used to enhance recall of information.

Hypnotic Age Regression

A therapeutic technique in which a person is guided to recall and sometimes re-experience events from their past while under hypnosis.

Retrieval Cue

A stimulus that allows for the recall of information stored in memory, facilitating access to particular pieces of information.

Mnemonic Device

A tool that aids in remembering information, often using patterns of letters, ideas, or associations.