A US-Based Investor Buys from You a Quanto Option in Which

question 22

Multiple Choice

A US-based investor buys from you a quanto option in which the payoffs from a euro-denominated call on a German company are converted back into US dollars at the fixed rate of $1.25/€. To hedge this transaction

• A) You must hedge both exchange rate and equity price risk.
• B) You must hedge equity price risk but there is no exchange rate risk.
• C) You must hedge exchange rate risk but there is no equity price risk.
• D) There is nothing you need to do.

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Definitions:

Logic 0

Represents a low state or off condition in digital electronics or binary systems.

Programmed XIO Instruction

In PLC programming, an "Examine if Open" instruction that checks if a specific condition or input is false.

Bit Status

Refers to the on or off condition of a bit within a digital system, where '0' typically represents off and '1' represents on.

Logic Continuity

The consistent application and flow of logical operations or conditions within a system, ensuring coherent and expected behavior.