Exam 5: Currency Derivatives

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 are exchange traded

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.

Macomb Corporation is a U.S.firm that invoices some of its exports in Japanese yen.  If it expects the yen to weaken,it could _______ to hedge the exchange rate risk on those exports.

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

Forward contracts are usually liquidated by actual delivery of the currency,while futures contracts are usually liquidated by offsetting transactions.

Johnson,Inc.,a U.S.-based MNC,will need 10 million Thai baht on August 1.It is now May 1.Johnson has negotiated a non-deliverable forward contract with its bank.The reference rate is the baht's closing exchange rate (in $)quoted by Thailand's central bank in 90 days.The baht's spot rate today is $.02.If the rate quoted by Thailand's central bank on August 1 is $.022,Johnson will ________ $__________.

Conditional currency options are:

Futures and options are available for crossrates.

The greater the variability of a currency,the _______ will be the premium of a call option on this currency,and the _______ will be the premium of a put option on this currency,other things equal.

You purchase a put option on Swiss francs for a premium of $.02,with an exercise price of $.61.  The option will not be exercised until the expiration date,if at all.  If the spot rate on the expiration date is $.58,your net profit per unit is:

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 equal.

Assume that a currency's spot and future prices are the same,and the currency's interest rate is higher than the U.S.rate.  The actions of U.S.investors to lock in this higher foreign return would _______ the currency's spot rate and _______ the currency's futures price.

If the futures rate is lower than the forward rate,astute investors would attempt to simultaneously buy futures and sell forward.Such actions would place downward pressure on the futures price and upward pressure on the forward rate.

The one-year forward rate of the British pound is quoted at $1.60,and the spot rate of the British pound is quoted at $1.63.The forward ________ is _______ percent.

You are a speculator who sells a call option on Swiss francs for a premium of $.06,with an exercise price of $.64.  The option will not be exercised until the expiration date,if at all.  If the spot rate of the Swiss franc is $.69 on the expiration date,your net profit per unit,assuming that you have to buy Swiss francs in the market to fulfil your obligation,is:

The US options exchanges are regulated by the SEC.

You purchase a call option on pounds for a premium of $.03 per unit,with an exercise price of $1.64;the option will not be exercised until the expiration date,if at all.  If the spot rate on the expiration date is $1.65,your net profit per unit is:

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

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