Question
1.The current USD/GBP exchange rate is 1.25, the exchange rate has an annualized volatility of 10%, and 1-year interest rates in the two currencies are:
1.The current USD/GBP exchange rate is 1.25, the exchange rate has an annualized volatility of 10%, and 1-year interest rates in the two currencies are:
i usd = 1% i gbp = 3%
- If Goldman Sachs sells 1-year call options on 10 million GBP with a strike price of 1.25, what initial position must they take in GBP to hedge this transaction? Assume Garman-Kohlhagen holds.
- If the exchange rate moves immediately to 1.26 USD/GBP, what transaction must they do to maintain the hedge?
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College Mathematics For Business Economics, Life Sciences, And Social Sciences
Authors: Raymond Barnett, Michael Ziegler, Karl Byleen, Christopher Stocker
14th Edition
0134674146, 978-0134674148
