Decided to manage its interest rate risk by hedging

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Reference no: EM131935033

1. Suppose you “write” a call option on XYZ stock with an exercise price of $100 for a premium of $10. If at the expiration the value of the underlying stock rises to $120, what is your net gain or loss ($)?

A. A net gain of $10

B. A net gain of $20

C. A net loss of $10

D. A net loss of $20

2. The Bank of Munich has decided to manage its interest rate risk by hedging. Given the bank's decision, which of the following must be TRUE?

The bank's duration gap is positive and it expects interest rates to increase.

The bank's gap is negative and it expects interest rates to decrease.

The bank's duration gap is negative and it expects interest rates to increase.

The bank's gap is positive and it expects interest rates to increase.

Reference no: EM131935033

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