Question 1

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

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 2

If the observed put option premium is less than what is suggested by the put-call parity equation,astute arbitrageurs could make a profit by ________ the put option,___________ the call option,and __________ the underlying currency.

Accepted Answer

A)  selling;buying;buying 
B)  buying;selling;buying 
C)  selling;buying;selling 
D)  buying;buying;buying 
A)  selling;buying;buying 
B)  buying;selling;buying 
C)  selling;buying;selling 
D)  buying;buying;buying

Question 3

The writer of an uncovered call can experience a loss limited to the option premium.

Accepted Answer

A) True 
 B)False

Question 4

Graylon,Inc.,based in Washington,exports products to a German firm and will receive payment of €200,000 in three months.On June1,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 euroon 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 5

Forward contracts:

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 6

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

Question 7

The writer of a call option is obligated to sell the underlying currency to the buyer of the option if the option is exercised.

Accepted Answer

A) True 
 B)False

Question 8

European currency options can be exercised _______;American currency options can be exercised _______.

Accepted Answer

A)  any time up to the expiration date;any time up to the expiration date 
B)  any time up to the expiration date;only on the expira tion date 
C)  only on the expira tion date;only on the expiration date 
D)  only on the expira tion date;any time up to the expira tion date 
A)  any time up to the expiration date;any time up to the expiration date 
B)  any time up to the expiration date;only on the expira tion date 
C)  only on the expira tion date;only on the expiration date 
D)  only on the expira tion date;any time up to the expira tion date

Question 9

A U.S.corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$)receivable.The premium is $.01 and the exercise price of the option is $.75.If the spot rate at the time of maturity is $.85,what is the net amount received by the corporation if it acts rationally

Accepted Answer

A)  $74,000. 
B)  $84,000. 
C)  $75,000. 
D)  $85,000. 
A)  $74,000. 
B)  $84,000. 
C)  $75,000. 
D)  $85,000.

Question 10

Kalons,Inc.is a U.S.-based MNC that frequently imports raw materials from Canada.Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future.Which of the following is not an appropriate hedging technique under these circumstances

Accepted Answer

A)  purchase Canadian dollars forward. 
B)  purchase Canadian dollar futures contracts. 
C)  purchase Canadian dollar put options. 
D)  purchase Canadian dollar call options. 
A)  purchase Canadian dollars forward. 
B)  purchase Canadian dollar futures contracts. 
C)  purchase Canadian dollar put options. 
D)  purchase Canadian dollar call options.

Question 11

Which of the following is true

Accepted Answer

A)  Most forward contracts between firms and banks are for speculative purposes. 
B)  Most future contracts represent a conservative approach by firms to hedge foreign trade. 
C)  The forward contracts offered by banks have maturities for only four possible dates in the future. 
D)  none of the above 
A)  Most forward contracts between firms and banks are for speculative purposes. 
B)  Most future contracts represent a conservative approach by firms to hedge foreign trade. 
C)  The forward contracts offered by banks have maturities for only four possible dates in the future. 
D)  none of the above

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

Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66.  The forward rate exhibits a _______ of _______.

Accepted Answer

A)  premium;about 6% 
B)  discount;about 6% 
C)  discount;about 6.45% 
D)  premium;about 6.45% 
A)  premium;about 6% 
B)  discount;about 6% 
C)  discount;about 6.45% 
D)  premium;about 6.45%

Question 14

The forward premium is the price specified in a call or put option.

Accepted Answer

A) True 
 B)False

Question 15

There are no transactions costs associated with trading futures or options.

Accepted Answer

A) True 
 B)False

Question 16

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 17

An implicit forward contract is a new type of forward contract that does not result in the actual exchange of currencies in the future.

Accepted Answer

A) True 
 B)False

Question 18

Margin is used in the forward market to mitigate default risk.

Accepted Answer

A) True 
 B)False

Question 19

You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit,with an exercise price of $.86.  The option will not be exercised until the expiration date,if at all.  If the spot rate of the Canadian dollar is $.78 on the expiration date,your net profit per unit is:

Accepted Answer

A)  $.08.0 
B)  $.03. 
C)  $.05. 
D)  $.08. 
E)  none of the above 
A)  $.08.0 
B)  $.03. 
C)  $.05. 
D)  $.08. 
E)  none of the above

Question 20

Which of the following would result in a profit of a euro futures contract when the euro depreciates

Accepted Answer

A)  buy a euro futures contract;sell a futures contract after the euro has depreciated. 
B)  sell a euro futures contract;buy a futures contract after the euro has depreciated. 
C)  buy a euro futures contract;buy an additional futures contract after the euro has depreciated. 
D)  none of the above would result in a profit when the euro depreciates. 
A)  buy a euro futures contract;sell a futures contract after the euro has depreciated. 
B)  sell a euro futures contract;buy a futures contract after the euro has depreciated. 
C)  buy a euro futures contract;buy an additional futures contract after the euro has depreciated. 
D)  none of the above would result in a profit when the euro depreciates.

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

If the observed put option premium is less than what is suggested by the put-call parity equation,astute arbitrageurs could make a profit by __ the put option,_ the call option,and ______ the underlying currency.

The writer of an uncovered call can experience a loss limited to the option premium.

Forward contracts:

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

The writer of a call option is obligated to sell the underlying currency to the buyer of the option if the option is exercised.

European currency options can be exercised _;American currency options can be exercised _.

A U.S.corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$)receivable.The premium is $.01 and the exercise price of the option is $.75.If the spot rate at the time of maturity is $.85,what is the net amount received by the corporation if it acts rationally

Which of the following is true

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

Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66. The forward rate exhibits a _ of _.

The forward premium is the price specified in a call or put option.

There are no transactions costs associated with trading futures or options.

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

An implicit forward contract is a new type of forward contract that does not result in the actual exchange of currencies in the future.

Margin is used in the forward market to mitigate default risk.

You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit,with an exercise price of $.86. The option will not be exercised until the expiration date,if at all. If the spot rate of the Canadian dollar is $.78 on the expiration date,your net profit per unit is:

Which of the following would result in a profit of a euro futures contract when the euro depreciates

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

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

If the observed put option premium is less than what is suggested by the put-call parity equation,astute arbitrageurs could make a profit by ________ the put option,___________ the call option,and __________ the underlying currency.

The writer of an uncovered call can experience a loss limited to the option premium.

Forward contracts:

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

The writer of a call option is obligated to sell the underlying currency to the buyer of the option if the option is exercised.

European currency options can be exercised _______;American currency options can be exercised _______.

A U.S.corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$)receivable.The premium is $.01 and the exercise price of the option is $.75.If the spot rate at the time of maturity is $.85,what is the net amount received by the corporation if it acts rationally

Which of the following is true

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

Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66. The forward rate exhibits a _______ of _______.

The forward premium is the price specified in a call or put option.

There are no transactions costs associated with trading futures or options.

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

An implicit forward contract is a new type of forward contract that does not result in the actual exchange of currencies in the future.

Margin is used in the forward market to mitigate default risk.

You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit,with an exercise price of $.86. The option will not be exercised until the expiration date,if at all. If the spot rate of the Canadian dollar is $.78 on the expiration date,your net profit per unit is:

Which of the following would result in a profit of a euro futures contract when the euro depreciates

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

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

If the observed put option premium is less than what is suggested by the put-call parity equation,astute arbitrageurs could make a profit by __ the put option,_ the call option,and ______ the underlying currency.

European currency options can be exercised _;American currency options can be exercised _.

Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66. The forward rate exhibits a _ of _.

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