Suppose That the Exchange Rate Is €1

question 18

Multiple Choice

Suppose that the exchange rate is €1.25 = £1.00. Options (calls and puts) are available on the London exchange in units of €10,000 with strike prices of £0.80 = €1.00.
Options (calls and puts) are available on the Frankfurt exchange in units of £10,000 with strike prices of €1.25 = £1.00.
For a U.K. firm to hedge a €100,000 payable,

• A) buy 10 call options on the euro with a strike in pounds sterling.
• B) buy 8 put options on the pound with a strike in euro.
• C) sell 10 call options on the euro with a strike in pounds sterling.
• D) sell 8 put options on the pound with a strike in euro.
• E) both a and b
• F) both c and d

---

Definitions:

Throwaway Question

is a question asked without expecting a serious answer, often used to change the subject or lighten the mood.

Drug Addict

An individual who has developed a dependence on drugs, characterized by an uncontrollable desire to consume the substance despite harmful consequences.

Probing Question

A question designed to elicit more detailed responses, often used to explore the depth of the respondent's knowledge or feelings on a topic.

Essential Question

A broad, fundamental question that guides the learning process and encourages exploration and understanding of core concepts.