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A U.S.-based banks position in options on the EURUSD exchange rate has a delta of...

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Accounting

A U.S.-based banks position in options on the EURUSD exchange rate has a delta of 30,000 and a gamma of 80000,. The EURUSD (dollars per euro) exchange rate is now 1.07.
(a) Explain how these numbers can be interpreted. (6 points)
(b) What position would you take to make the position delta-neutral? (3 points)
(c) After a short period of time, the EURUSD exchange rate wildly moves to 1.11. Estimate the new delta. (6 points)
(d) Continuing from part (c), what additional trade is necessary to keep the position delta neutral? (3 points)
(e) Assuming the bank did set up a delta-neutral position originally, has it gained or lost money from the exchange-rate movement? (3 points)

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