Explanation
Price quotes for futures where one of the currencies is the US dollar follow the convention of using the number of US dollars one unit of the foreign currency can buy. (For JPY, 100 Yen is used.) In the forward market, the same convention as is used in the spot market is used.
In the spot market, prices are expressed as the number of units of the foreign currency that 1 USD can buy, except for GBP, EUR, AUD and NZD where it is the other way round (ie, number of USDs that 1 of each of these currencies can buy).

Explanation
The minimum variance hedge ratio answers the question of how much of the hedge to buy to hedge a given position. It minimizes the combined volatility of the primary and the hedge position. The minimum variance hedge ratio is given by the expression [ (x) / (y) ] * (x,y)]. Effectively, this is the same as the beta of the primary position with respect to the hedge.
In this case, the hedge ratio is = 10%/9% * 0.9 = 1

Explanation
The effectiveness of the hedge is solely determined by the correlation between the position being hedged, and the position being used as the hedge. A hedge can be perfect when correlation is 1, and will be less than perfect when it is anything other than 1.The effectiveness of the optimal hedge is given by the formula (1-2), where is the correlation between the two. Therefore Choice 'c' is the correct answer. Standard deviations affect the hedge ratio, not the effectiveness of the hedge.

Explanation
Imagine a bond that provides just two cash flows: $100 in one year and $10 in 10 years. Imagine another bond that pays nothing now but $100 in 10 years. Assume that both have identical yields to maturity. Yet despite the identical YTM, the bonds are quite dissimilar. For the first bond, we face the risk that we would receive the bulk of the present value of the bond in an year's time, and while there is a small amount due in 10 years, the first payment may not find an equally attractive investment opportunity. Reinvestment risk refers to the risk that cash flows from a bond may not be investible at the yield to maturity for the bond. In such cases, bonds that have longer durations are preferable.
A coupon bearing bond with a coupon rate lower than our benchmark bond will carry a lower reinvestment risk as its cash flows are weighted more towards the end. An amortizing bond returns a part of the principle periodically, increasing reinvestment risk. A higher coupon bearing bond will have a higher reinvestment risk, and a zero coupon bond will have the least reinvestment risk.

Explanation
The buyer of a cap who is primarily interested in protecting against a rise in interest rates and does not mind losing some of the gains if interest rates were to fall can reduce her costs by selling a floor with a lower strike rate. Selling a cap would further expose her to the risk of rising rates, exactly what she is trying to protect herself against, and reducing the strike rate for the cap will actually increase the cost of the cap. Similarly, increasing the time period to which the cap applies will also increase the cost of the cap.