Exam 5: Currency Derivatives

​If you expect the British pound to appreciate, you could speculate by ____ pound call options or ____ pound put options.

Futures and options are available for cross rates.

The highest amount a buyer of a call or a put option can lose is the exercise price.

The option exchanges in the United States are regulated by the Consumer Finance Protection Bureau and the Federal Trade Commission.

Conditional currency options are:

If an investor who previously sold futures contracts wishes to liquidate his position, he could sell futures contracts with the same maturity date.

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

If a currency put option is out of the money, then the present exchange rate is less than the strike price.

​The shorter the time to the expiration date for a currency, the ____ will be the premium of a call option, and the ____ will be the premium of a put option, other things being equal.

​If the spot rate of the euro increased substantially over a one-month period, the futures price on euros would likely ____ over that same period.

​Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is:

With a bull spread, the spreader believes that the underlying currency will appreciate substantially, even more so than with a strangle.

A forward rate for a currency is said to exhibit a discount if:

Both call and put option premiums are affected by the level of the existing spot rate relative to the strike price, the length of time before the expiration date, and the potential variability of the currency.

Assume no transactions costs exist for any futures or forward contracts. The price of British pound futures with a settlement date 180 days from now will:

​Which of the following is true?

A straddle involves the purchase of either two call or two put options at the same exercise price.

​In the United States, the typical currency futures contract is based on a currency value in terms of:

Since corporations have specialized needs, they usually prefer futures contracts to forward contracts for hedging purposes.

​If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.