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Exam 2016-FRR Topic 3 Question 347 Discussion

Actual exam question for GARP's 2016-FRR exam
Question #: 347
Topic #: 3
A risk manager has a long forward position of USD 1 million but the option portfolio decreases JPY 0.50 for every JPY 1 increase in his forward position. At first approximation, what is the overall result of the options positions?

Suggested Answer: B Vote an answer

The risk manager has a long forward position of USD 1 million. The options portfolio decreases by JPY 0.50 for every JPY 1 increase in the forward position. This indicates that the options provide a hedge that is half the size of the forward position because a JPY 1 increase in the forward position is offset by only JPY 0.50 from the options. Thus, the options positions hedge the forward position by 50%.

by Susie at Jan 30, 2026, 03:03 PM

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