1. The covariance of the change in spot exchange rates and the change in futures exchange rates is 0.6060, and the variance of the change in futures exchange rates is 0.5150. What is the estimated hedge ratio for this currency? (closest to)

A. 1.200.

B. 0.694.

C. 0.306.

D. 1.177

E. 0.833.

2. Corporate Bank has US$850 million of assets with a duration of 15 years and liabilities worth US$720 million with a duration of 17 years. Assets and liabilities are yielding 7.56 percent. Both the call and the put have Deltas of 0.4 and -0.4 respectively. A bond 100,000 T-bond is selling for $104.53125 with a duration of 8.17 years and yield to maturity of 7.56%. The bank is concerned about preserving the value of its equity in the event of an increase in interest rates

This bank should ________________to hedge out risk.

A. sell 23,428 calls

B. buy 1,475 puts

C. buy 14,754 call s

D. sell 2,342 Puts