Question 1

If you purchase a straddle on euros, this implies that you:

Accepted Answer

A)  finance the purchase of a call option by selling a put option in the euros. 
B)  finance the purchase of a call option by selling a call option in the euros. 
C)  finance the purchase of a put option by selling a put option in the euros. 
D)  finance the purchase of a put option by selling a call option in the euros. 
E)  None of these are correct. 
A)  finance the purchase of a call option by selling a put option in the euros. 
B)  finance the purchase of a call option by selling a call option in the euros. 
C)  finance the purchase of a put option by selling a put option in the euros. 
D)  finance the purchase of a put option by selling a call option in the euros. 
E)  None of these are correct.

Question 2

​If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market.

Accepted Answer

A)  ​selling; selling 
B)  ​selling; purchasing 
C)  ​purchasing; purchasing 
D)  ​purchasing; selling 
A)  ​selling; selling 
B)  ​selling; purchasing 
C)  ​purchasing; purchasing 
D)  ​purchasing; selling

Question 3

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?​

Accepted Answer

A)  ​7.46 percent premium 
B)  ​7.46 percent discount 
C)  ​7.75 percent premium 
D)  ​7.75 percent discount 
A)  ​7.46 percent premium 
B)  ​7.46 percent discount 
C)  ​7.75 percent premium 
D)  ​7.75 percent discount

Question 4

Because constructing a long straddle in a foreign currency requires payment of two option premiums, the straddle becomes profitable only if the foreign currency appreciates or depreciates substantially.

Accepted Answer

A) True 
 B)False

Question 5

A contingency graph for the purchaser of a call option compares the price paid for the option to the payoffs received under various exchange rate scenarios.

Accepted Answer

A) True 
 B)False

Question 6

​Graylon, Inc., based in Washington, exports products to a German firm and will receive payment of €200,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, Graylon negotiated a forward contract with a bank to sell €200,000 forward in three months. The spot rate of the euro on September 1 is $1.15. Graylon will receive $____ for the euros.

Accepted Answer

A)  ​224,000 
B)  ​220,000 
C)  ​200,000 
D)  ​230,000 
A)  ​224,000 
B)  ​220,000 
C)  ​200,000 
D)  ​230,000

Question 7

Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high spot price relative to the strike price will result in a relatively high premium for a call option but a relatively low premium for a put option.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?

Accepted Answer

A)  Purchase a call option on francs. 
B)  Obtain a forward contract to purchase francs forward. 
C)  Sell a futures contract on francs. 
D)  All of these are appropriate strategies for the scenario described. 
A)  Purchase a call option on francs. 
B)  Obtain a forward contract to purchase francs forward. 
C)  Sell a futures contract on francs. 
D)  All of these are appropriate strategies for the scenario described.

Question 9

The currency futures markets are regulated by the International Monetary Fund.

Accepted Answer

A) True 
 B)False

Question 10

​The spot rate for the Singapore dollar is $.588. The 30-day forward rate is $.590. The forward rate contains an annualized ____ of ____ percent.

Accepted Answer

A)  ​discount; -4.07 
B)  ​premium; 4.07 
C)  ​discount; -4.08 
D)  ​premium; 4.08 
E)  ​premium; 3.40 
A)  ​discount; -4.07 
B)  ​premium; 4.07 
C)  ​discount; -4.08 
D)  ​premium; 4.08 
E)  ​premium; 3.40

Question 11

When the existing spot rate exceeds the exercise price, a call option is ____, and a put option is ____.​

Accepted Answer

A)  ​out of the money; in the money 
B)  ​out of the money; out of the money 
C)  ​in the money; in the money 
D)  ​in the money; out of the money 
A)  ​out of the money; in the money 
B)  ​out of the money; out of the money 
C)  ​in the money; in the money 
D)  ​in the money; out of the money

Question 12

​If you have bought the right to sell, you are a:

Accepted Answer

A)  ​call writer. 
B)  ​put buyer. 
C)  ​futures buyer. 
D)  ​put writer. 
A)  ​call writer. 
B)  ​put buyer. 
C)  ​futures buyer. 
D)  ​put writer.

Question 13

Which of the following is true regarding options?

Accepted Answer

A)  Options are only traded over-the-counter. 
B)  Speculators sell at-the-money put options when they expect that the currency's value will rise. 
C)  Speculators purchase at-the-money call options when they expect that the currency's value will fall. 
D)  Speculators sell at-the-money currency call options when they expect that the currency's value will rise. 
A)  Options are only traded over-the-counter. 
B)  Speculators sell at-the-money put options when they expect that the currency's value will rise. 
C)  Speculators purchase at-the-money call options when they expect that the currency's value will fall. 
D)  Speculators sell at-the-money currency call options when they expect that the currency's value will rise.

Question 14

Forward contracts are the best technique for managing exposure arising from project bidding.

Accepted Answer

A) True 
 B)False

Question 15

A U.S. corporation has purchased currency call options to hedge a 70,000 pound (£) payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if it acts rationally?

Accepted Answer

A)  $33,600 
B)  $46,900 
C)  $44,100 
D)  $36,400 
A)  $33,600 
B)  $46,900 
C)  $44,100 
D)  $36,400

Question 16

A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Accepted Answer

A) True 
 B)False

Question 17

If an MNC desires to offset a forward contract that it previously created, it can simply ignore its obligation.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions?

Accepted Answer

A)  forward contracts 
B)  futures contracts 
C)  non-deliverable forward contracts 
D)  options 
E)  All of these are instruments used to cover foreign currency positions. 
A)  forward contracts 
B)  futures contracts 
C)  non-deliverable forward contracts 
D)  options 
E)  All of these are instruments used to cover foreign currency positions.

Question 19

Which of the following does not represent the risk from using forward contracts?

Accepted Answer

A)  A forward contract is used to hedge receivables, and the spot exchange rate at the expiration of the contract exceeds the contract price. 
B)  A forward contract is used to hedge receivables, and the spot exchange rate at the time of expiration of the contract is lower than the contract price. 
C)  A forward contract is used to hedge payables, and the spot exchange rate at the time of expiration of the contract is lower than the contract price. 
D)  A forward contract is used to hedge payables or receivables, and the amount to be received or paid is canceled. 
A)  A forward contract is used to hedge receivables, and the spot exchange rate at the expiration of the contract exceeds the contract price. 
B)  A forward contract is used to hedge receivables, and the spot exchange rate at the time of expiration of the contract is lower than the contract price. 
C)  A forward contract is used to hedge payables, and the spot exchange rate at the time of expiration of the contract is lower than the contract price. 
D)  A forward contract is used to hedge payables or receivables, and the amount to be received or paid is canceled.

Question 20

Non-deliverable forward contracts (NDFs) are frequently used for currencies in emerging markets.

Accepted Answer

A) True 
 B)False

If you purchase a straddle on euros, this implies that you:

If your firm expects the euro to substantially depreciate, it could speculate by euro call options or euros forward in the forward exchange market.

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?

Because constructing a long straddle in a foreign currency requires payment of two option premiums, the straddle becomes profitable only if the foreign currency appreciates or depreciates substantially.

A contingency graph for the purchaser of a call option compares the price paid for the option to the payoffs received under various exchange rate scenarios.

Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high spot price relative to the strike price will result in a relatively high premium for a call option but a relatively low premium for a put option.

Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?

The currency futures markets are regulated by the International Monetary Fund.

The spot rate for the Singapore dollar is $.588. The 30-day forward rate is $.590. The forward rate contains an annualized of percent.

When the existing spot rate exceeds the exercise price, a call option is , and a put option is .

If you have bought the right to sell, you are a:

Which of the following is true regarding options?

Forward contracts are the best technique for managing exposure arising from project bidding.

A U.S. corporation has purchased currency call options to hedge a 70,000 pound (£) payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if it acts rationally?

A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

If an MNC desires to offset a forward contract that it previously created, it can simply ignore its obligation.

Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions?

Which of the following does not represent the risk from using forward contracts?

Non-deliverable forward contracts (NDFs) are frequently used for currencies in emerging markets.

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 5: Currency Derivatives

If you purchase a straddle on euros, this implies that you:

​If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market.

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?​

Because constructing a long straddle in a foreign currency requires payment of two option premiums, the straddle becomes profitable only if the foreign currency appreciates or depreciates substantially.

A contingency graph for the purchaser of a call option compares the price paid for the option to the payoffs received under various exchange rate scenarios.

Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high spot price relative to the strike price will result in a relatively high premium for a call option but a relatively low premium for a put option.

Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?

The currency futures markets are regulated by the International Monetary Fund.

​The spot rate for the Singapore dollar is $.588. The 30-day forward rate is $.590. The forward rate contains an annualized ____ of ____ percent.

When the existing spot rate exceeds the exercise price, a call option is ____, and a put option is ____.​

​If you have bought the right to sell, you are a:

Which of the following is true regarding options?

Forward contracts are the best technique for managing exposure arising from project bidding.

A U.S. corporation has purchased currency call options to hedge a 70,000 pound (£) payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if it acts rationally?

A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

If an MNC desires to offset a forward contract that it previously created, it can simply ignore its obligation.

Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions?

Which of the following does not represent the risk from using forward contracts?

Non-deliverable forward contracts (NDFs) are frequently used for currencies in emerging markets.

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

If your firm expects the euro to substantially depreciate, it could speculate by euro call options or euros forward in the forward exchange market.

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?

The spot rate for the Singapore dollar is $.588. The 30-day forward rate is $.590. The forward rate contains an annualized of percent.

When the existing spot rate exceeds the exercise price, a call option is , and a put option is .

If you have bought the right to sell, you are a: