1. Say we are in a country that does not permit corporations to have on balance-sheet exposure to equity market risk, so the company cannot, for example, take positions in equities or equity indices outright. How might a CFO of a company still take on such risks?
A. Enter into an equity swap to pay the equity index return and receive Libor.
B. Enter into an equity swap to receive the equity index return and pay Libor.
C. Both (a) and (b).
D. Neither (a) nor (b).
2. A call option on Teva Inc. has an exercise price of $27. The current stock price of Teva Inc. is $26. The call option is __________.
Out of the money
At the money
Cannot determine
In the money
Deep out of the money