Exam 5: Currency Derivatives

Currency options are traded through the GLOBEX system at the:

Which of the following is correct

Carl is an option writer.In anticipation of a depreciation of the British pound from its current level of $1.50 to $1.45,he has written a call option with an exercise price of $1.51 and a premium of $.02.If the spot rate at the option's maturity turns out to be $1.54,what is Carl's profit or loss per unit (assuming the buyer of the option acts rationally)

The premium of a currency put option will increase if:

Currency futures contracts sold on an exchange:

A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms.  The premium is $.03.  The exercise price is $.55.  If the option is exercised,what is the total amount of dollars received (after accounting for the premium paid)

Options can be traded on an exchange or over the counter.

If you have a position where you might be obligated to buy Euros,you are:

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

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

A put 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.

If the futures rate is above the forward rate,actions by rational investors would put upward pressure on the forward rate and downward pressure on the futures rate.

American style options can be exercised any time up to maturity.

If the spot rate of the euro increased substantially over a onemonth period,the futures price on euros would likely ______________ over that same period.

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 premium on a pound put option is $.03 per unit.  The exercise price is $1.60.  The break-even point is _______ for the buyer of the put,and _______ for the seller of the put.  (Assume zero transactions costs and that the buyer and seller of the put option are speculators.)

If an actual put option premium is less than what is suggested by the put-call parity relationship,arbitrage can be conducted.

A U.S.firm is bidding for a project needed by the Swiss government.  The firm will not know if the bid is accepted until three months from now.  The firm will need Swiss francs to cover expenses but will be paid by the Swiss government in dollars if it is hired for the project.  The firm can best insulate itself against exchange rate exposure by:

The existing spot rate of the Canadian dollar is $.82.  The premium on a Canadian dollar call option is $.04.  The exercise price is $.81.  The option will be exercised on the expiration date if at all.  If the spot rate on the expiration date is $.87,the profit as a percent of the initial investment (the premium paid)is:

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: