Exam 5: Currency Derivatives

An option writer is the seller of a call or a put option.

​When the futures price on euros is below the forward rate on euros for the same settlement date, astute investors may attempt to simultaneously ____ euros forward and ____ euro futures.

A put option on British pounds has a strike (exercise) price of $1.57. The present exchange rate is $1.53. This put option can be referred to as:

​When you own ____, there is no obligation on your part; however, when you own ____, there is an obligation on your part.

Which of the following is not true regarding currency options?

When the current exchange rate is less than the strike price, a call option with that strike price will be in the money and a put option with that strike price will be out of the money.

The spot rate of the British pound is quoted at $1.49. The 90-day forward rate exhibits a 2 percent discount. What is the 90-day forward rate of the pound?

A speculator in futures contracts who expects the value of a foreign currency to depreciate would likely sell futures contracts.

The ____ the existing spot price relative to the strike price, the ____ valuable a put option will be.

Assume the spot rate of a currency is $.37 and the 90-day forward rate is $.36. The forward rate of this currency exhibits a ____ of ____ on an annualized basis.

The price of a futures contract will generally vary significantly from that of a forward contract.

​A call option premium has a lower bound that is equal to the greater of zero and the difference between the underlying ____ prices. The upper bound of a call option premium is the ____ price.

​Thornton, Inc. needs to invest 5 million Nepalese rupees in its Nepalese subsidiary to support local operations. Thornton would like its subsidiary to repay the rupees in one year. Thornton would like to engage in a swap transaction. Thus, Thornton would:

A European option can only be exercised at the expiration date, while an American option can be exercised any time prior to the expiration date.

The choice of a basic versus a conditional option depends on expectations about the currency's exchange rate over the period of concern.

​If you have a position where you might be obligated to sell pounds, you are:

​Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances?

A straddle can only be achieved if the exercise prices of put and call options are the same.

​If you have an options position in which you might be obligated to buy euros, you are a:

An MNC frequently uses either forward or futures contracts to hedge its exposure to foreign payables. To do so, the MNC can either sell the foreign currency forward or sell futures.