A portfolio of options on the EURO (EUR) has a delta of -200 and gamma of -150. A traded option with a delta of 0.8 and gamma of 1.5 is available. What position in the traded option and EUR would make the portfolio both delta and gamma neutral?

Select one:

a. a long position in 100 EUR and a long position in 200 traded options

b. a long position in 100 EUR and a long position in 100 traded options

c. a long position in 120 EUR and a long position in 100 traded options

d. a long position in 200 EUR and a long position in 150 traded options

e. a short position in 200 EUR and a long position in 200 traded options

Freda will need to issue ten-year bonds in four-months' time. She is most exposed to:

Select one:

a. short-term interest rates rising.

b. long-term interest rates rising.

c. short-term interest rates falling.

d. long-term interest rates falling.

e. a ratio hedge of short- to long-term interest rates.

Firm X can borrow at the floating rate of LIBOR+0.5% p.a. or at the fixed rate of 4.0% p.a. Firm Y can borrow at LIBOR+1.0% p.a. floating or at 5.25% p.a. fixed. The quality spread differential is:

Select one:

a. 0.5% p.a.

b. 0.75% p.a.

c. 1.25% p.a.

d. 1.75% p.a.

e. none of the above.

A swap dealer is a net floating-rate payer and net fixed-rate receiver. The dealer can hedge this position by:

Select one:

a. unwinding some positions where the dealer is fixed-rate payer.

b. unwinding some positions where the dealer is floating-rate receiver.

c. finding another counterparty that wishes to receive floating-rate and pay fixed-rate.

d. taking a short position in a strip of interest rate futures.

e. taking a long position in a strip of interest rate futures.