Question 1

Currency options sold through an options exchange:

Accepted Answer

A)  contain a commitment to the owner, and are standardized. 
B)  contain a commitment to the owner, and can be tailored to the desire of the owner. 
C)  contain a right but not a commitment to the owner, and can be tailored to the desire of the owner. 
D)  contain a right but not a commitment to the owner, and are standardized. 
A)  contain a commitment to the owner, and are standardized. 
B)  contain a commitment to the owner, and can be tailored to the desire of the owner. 
C)  contain a right but not a commitment to the owner, and can be tailored to the desire of the owner. 
D)  contain a right but not a commitment to the owner, and are standardized.

Question 2

In the U.S.,the typical currency futures contract is based on a currency value in terms of:

Accepted Answer

A)  euros. 
B)  U.S. dollars. 
C)  British pounds. 
D)  Canadian dollars. 
A)  euros. 
B)  U.S. dollars. 
C)  British pounds. 
D)  Canadian dollars.

Question 3

Which of the following are true regarding the options markets

Accepted Answer

A)  Hedgers and speculators both attempt to lower risk. 
B)  Hedgers attempt to lower risk, while speculators attempt to make riskless profits. 
C)  Hedgers and speculators are both necessary in order for the market to be liquid. 
D)  all of the above 
A)  Hedgers and speculators both attempt to lower risk. 
B)  Hedgers attempt to lower risk, while speculators attempt to make riskless profits. 
C)  Hedgers and speculators are both necessary in order for the market to be liquid. 
D)  all of the above

Question 4

Which of the following is the most likely strategy for a U.S.firm that will be receiving 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)  sell a futures contract on francs. 
C)  obtain a forward contract to purchase francs forward. 
D)  all of the above are appropriate strategies for the scenario described. 
A)  purchase a call option on francs. 
B)  sell a futures contract on francs. 
C)  obtain a forward contract to purchase francs forward. 
D)  all of the above are appropriate strategies for the scenario described.

Question 5

Which of the following is true

Accepted Answer

A)  The futures market is primarily used by speculators while the forward market is primarily used for hedging. 
B)  The futures market is primarily used for hedging while the forward market is primarily used for speculating. 
C)  The futures market and the forward market are primarily used for speculating. 
D)  The futures market and the forward market are primarily used for hedging. 
A)  The futures market is primarily used by speculators while the forward market is primarily used for hedging. 
B)  The futures market is primarily used for hedging while the forward market is primarily used for speculating. 
C)  The futures market and the forward market are primarily used for speculating. 
D)  The futures market and the forward market are primarily used for hedging.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  buy a euro call and buy a euro put 
B)  buy a euro call and sell a euro put 
C)  sell a euro call and sell a euro put 
D)  sell a euro call and buy a euro put 
A)  buy a euro call and buy a euro put 
B)  buy a euro call and sell a euro put 
C)  sell a euro call and sell a euro put 
D)  sell a euro call and buy a euro put

Question 8

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:

Accepted Answer

A)  $1,562.50. 
B)  -$1,562.50. 
C)  -$1,250.00. 
D)  -$625.00. 
A)  $1,562.50. 
B)  -$1,562.50. 
C)  -$1,250.00. 
D)  -$625.00.

Question 9

A call option on Australian dollars has a strike (exercise)price of $.56.The present exchange rate is $.59.This call option can be referred to as:

Accepted Answer

A)  in the money. 
B)  out of the money. 
C)  at the money. 
D)  at a discount. 
A)  in the money. 
B)  out of the money. 
C)  at the money. 
D)  at a discount.

Question 10

Thornton,Inc.needs to invest five 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:

Accepted Answer

A)  convert the rupees to dollars in the spot market today and convert rupees to dollars in one year at today's forward rate. 
B)  convert the dollars to rupees in the spot market today and convert dollars to rupees in one year at the prevailing spot rate. 
C)  convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at today's forward rate. 
D)  convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at the prevailing spot rate. 
A)  convert the rupees to dollars in the spot market today and convert rupees to dollars in one year at today's forward rate. 
B)  convert the dollars to rupees in the spot market today and convert dollars to rupees in one year at the prevailing spot rate. 
C)  convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at today's forward rate. 
D)  convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at the prevailing spot rate.

Question 11

Hedgers should buy puts if they are hedging an expected inflow of foreign currency.

Accepted Answer

A) True 
 B)False

Question 12

The 90-day forward rate for the euro is $1.07,while the current spot rate of the euro is $1.05.What is the annualized forward premium or discount of the euro

Accepted Answer

A)  1.9 percent discount. 
B)  1.9 percent premium. 
C)  7.6 percent premium. 
D)  7.6 percent discount. 
A)  1.9 percent discount. 
B)  1.9 percent premium. 
C)  7.6 percent premium. 
D)  7.6 percent discount.

Question 13

Your company expects to receive 5,000,000 Japanese yen 60 days from now.You decide to hedge your position by selling Japanese yen forward.The current spot rate of the yen is $.0089,while the forward rate is $.0095.You expect the spot rate in 60 days to be $.0090.How many dollars will you receive for the 5,000,000 yen 60 days from now

Accepted Answer

A)  $44,500. 
B)  $45,000. 
C)  $526 million. 
D)  $47,500. 
A)  $44,500. 
B)  $45,000. 
C)  $526 million. 
D)  $47,500.

Question 14

A straddle is a speculative strategy that represents the purchase of both a call and a put.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  call options;put options 
B)  futures contracts;call options 
C)  forward contracts;futures contracts 
D)  put options;forward contracts 
A)  call options;put options 
B)  futures contracts;call options 
C)  forward contracts;futures contracts 
D)  put options;forward contracts

Question 16

The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price;the upper bound of a currency call option is the spot rate.

Accepted Answer

A) True 
 B)False

Question 17

The purchase of a currency put option would be appropriate for which of the following

Accepted Answer

A)  Investors who expect to buy a foreign bond in one month. 
B)  Corporations who expect to buy foreign currency to finance foreign subsidiaries. 
C)  Corporations who expect to collect on a foreign account receivable in one month. 
D)  all of the above 
A)  Investors who expect to buy a foreign bond in one month. 
B)  Corporations who expect to buy foreign currency to finance foreign subsidiaries. 
C)  Corporations who expect to collect on a foreign account receivable in one month. 
D)  all of the above

Question 18

Which of the following is true for futures,but not for forwards

Accepted Answer

A)  actual delivery. 
B)  no transactions costs. 
C)  self regulation. 
D)  none of the above 
A)  actual delivery. 
B)  no transactions costs. 
C)  self regulation. 
D)  none of the above

Question 19

A put option on British pounds has a strike (exercise)price of $1.48.The present exchange rate is $1.55.This put option can be referred to as:

Accepted Answer

A)  in the money. 
B)  out of the money. 
C)  at the money. 
D)  at a discount. 
A)  in the money. 
B)  out of the money. 
C)  at the money. 
D)  at a discount.

Question 20

Futures contracts are standardized with respect to delivery date and the futures price specified for the settlement date.

Accepted Answer

A) True 
 B)False

Currency options sold through an options exchange:

In the U.S.,the typical currency futures contract is based on a currency value in terms of:

Which of the following are true regarding the options markets

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

Which of the following is true

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

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

A call option on Australian dollars has a strike (exercise)price of $.56.The present exchange rate is $.59.This call option can be referred to as:

Thornton,Inc.needs to invest five 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:

Hedgers should buy puts if they are hedging an expected inflow of foreign currency.

The 90-day forward rate for the euro is $1.07,while the current spot rate of the euro is $1.05.What is the annualized forward premium or discount of the euro

A straddle is a speculative strategy that represents the purchase of both a call and a put.

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

The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price;the upper bound of a currency call option is the spot rate.

The purchase of a currency put option would be appropriate for which of the following

Which of the following is true for futures,but not for forwards

A put option on British pounds has a strike (exercise)price of $1.48.The present exchange rate is $1.55.This put option can be referred to as:

Futures contracts are standardized with respect to delivery date and the futures price specified for the settlement date.

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

Multinational Restructuring

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 5: Currency Derivatives

Currency options sold through an options exchange:

In the U.S.,the typical currency futures contract is based on a currency value in terms of:

Which of the following are true regarding the options markets

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

Which of the following is true

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

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

A call option on Australian dollars has a strike (exercise)price of $.56.The present exchange rate is $.59.This call option can be referred to as:

Thornton,Inc.needs to invest five 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:

Hedgers should buy puts if they are hedging an expected inflow of foreign currency.

The 90-day forward rate for the euro is $1.07,while the current spot rate of the euro is $1.05.What is the annualized forward premium or discount of the euro

A straddle is a speculative strategy that represents the purchase of both a call and a put.

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

The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price;the upper bound of a currency call option is the spot rate.

The purchase of a currency put option would be appropriate for which of the following

Which of the following is true for futures,but not for forwards

A put option on British pounds has a strike (exercise)price of $1.48.The present exchange rate is $1.55.This put option can be referred to as:

Futures contracts are standardized with respect to delivery date and the futures price specified for the settlement date.

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

Multinational Restructuring

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

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