
CURRENCY OPTIONS 267
million obligation can also be offset by writing a USD 4 million put option if the hedge ratio
is (–)0.25. Conversely, a future cash inflow of USD 1 million can be hedged with a short posi-
tion of USD 1.43 million on a USD call option if the hedge ratio is (+ )0.70. If the hedge ratio
is (–)0.40, the USD 1 million future cash inflow can be hedged with a long position of USD
2.5 million on a U.S. dollar put option.
The delta of an option is a function of variables like interest rates and exchange rates.
As these variables change, the delta of an option changes. Therefore, there is a need for
An Indian firm has written a ...