Let's assume a bank sells to a client a put of \$1,000,000 dollars on USDJPY at 110 in 6 months. The delta of this put is -0.6, spot is 112. So to hedge its position the bank has to short \$600,000 dollars.
Two questions :
- Why couldn't the bank hedge in JPY as, if the client exercices, they will have to give him JPY instead of USD ?
- Does it change something if this option's prenium is in EUR ? Does the bank stil have to hedge in USD ?