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

question 32

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 options

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Definitions:

Memory Fades

The gradual loss or weakening of memories over time, often due to the decay of neural connections.

Reconstructive Process

A cognitive process involved in the remembrance of past events, where memories are often reconstructed rather than played back exactly.

Sir Frederic Bartlett

A pioneering British psychologist known for his work in cognitive psychology, especially on memory and schema theory.

Emotional Memories

Memories that are strongly influenced by the emotions felt at the time of the event, which can significantly impact the way those memories are recalled.