You have written a call option on 10,000 with a strike price of $20,000. The current exchange rate is $2.00/1.00 and in the next period the exchange rate can increase to $4.00/1.00 or decrease to $1.00/1.00 (i.e. u = 2 and d = 1/u = 0. 5). The current interest rates are i$ = 3% and are i = 2%. Find the hedge ratio and use it to create a position in the underlying asset that will hedge your option position.

A. Buy 10,000 today at $2.00/1.00

B. Enter into a short position in a futures contract on 6,666.67

C. Lend the present value of 6,666.67 today at i = 2%

D. Enter into a long position in a futures contract on 6,666.67

E. Both c and d would work

F. None of the above