If a bank is long £500 million pounds, short £300 million in delta-equivalent pound options, and long £100 million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the aggregated risk reports?

If a bank is long £500 million pounds, short £300 million in delta-equivalent pound options, and long £100 million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the aggregated risk reports?
A . £300 million pounds
B . £500 million pounds
C . £800 million pounds
D . £900 million pounds

View Answer

Answer: A

Explanation:

To determine the pound exposure in the aggregated risk reports, we sum the net positions:

Long £500 million:

The bank holds a long position of £500 million.

Short £300 million in delta-equivalent pound options:

This position reduces the exposure by £300 million.

Long £100 million in pound-denominated stocks:

This adds £100 million to the exposure.

Net exposure: 500-300+100=300?million pounds500 – 300 + 100 = 300 , ext{million pounds}500-300+100=300million pounds

Thus, the pound exposure shown in the aggregated risk reports is £300 million.

References Source: How Finance Works?