Consider a long forward foreign position in 40 US shares, with a strike price of 60 USD.For simplicity, assume the interest rate is always zero, so that (1+r)=1. Assume the spotstock price today is 50 USD. The exchange rate between euros and dollars is today 0.5.

Indicate how many shares should an European investor buy or sell today in order to protect (in the sense of delta-hedging) against risk associated to changes in the spot stock price. (use a positive number to indicate a "buy" strategy, and a negative number to indicate a "sell" strategy).

Answer rating: 100% (QA)

To hedge against changes in the spot stock price an investor can use de... View the full answer