Suppose That You Have Written a Call Option on €10,000

question 46

Multiple Choice

Suppose that you have written a call option on €10,000 with a strike price in dollars. Suppose further that the hedge ratio is ½. Which of the following would be an appropriate hedge for a short position in this call option?

• A)Buy €10,000 today at today's spot exchange rate.
• B)Buy €5,000 today at today's spot exchange rate.
• C)Agree to buy €5,000 at the maturity of the option at the forward exchange rate for the maturity of the option that prevails today .
• D)Buy the present value of €5,000 discounted at i€ for the maturity of the option.
• E)Both c and d would work.
• F) None of the above

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Definitions:

Anaplasia

A condition of cells in which they lose differentiation and revert to a more primitive or undifferentiated form, often associated with cancer.

Ana-

A prefix meaning "up, back, again, anew," used in medical terms.

Sarcoma

A type of cancer that originates in the bones and soft tissues, including fat, muscles, blood vessels, and fibrous tissues.

Carcinoma

A type of cancer that starts in cells that make up the skin or tissue linings of organs.