Wild movements in the spot rate

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Reference no: EM131237763

1. A company uses delta hedging to hedge a portfolio of long positions in put and call options on a currency. Which of the following would give the most favorable result?

(a) A virtually constant spot rate

(b) Wild movements in the spot rate Explain your answer.

2. Repeat Problem for a financial institution with a portfolio of short positions in put and call options on a currency.

Problem :
A company uses delta hedging to hedge a portfolio of long positions in put and call options on a currency. Which of the following would give the most favorable result?

(a) A virtually constant spot rate

(b) Wild movements in the spot rate Explain your answer.

Reference no: EM131237763

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