Question 1

When currency options are not standardized and traded over-the-counter,there is ______ liquidity and a ________ bid/ask spread.

Accepted Answer

A)  less;narrower 
B)  more;narrower 
C)  more;wider 
D)  less;wider 
A)  less;narrower 
B)  more;narrower 
C)  more;wider 
D)  less;wider

Question 2

Margin requirements are deposits placed by investors in futures contracts with their respective brokerage firms when they take their position.They are intended to minimize credit risk associated with futures contracts.

Accepted Answer

A) True 
 B)False

Question 3

As mentioned in the text,the most common maturities for forward rates are:

Accepted Answer

A)  one, three, six, and twelve months. 
B)  one, three, six, and twelve years. 
C)  two, three, and five years. 
D)  two, three, and five weeks. 
A)  one, three, six, and twelve months. 
B)  one, three, six, and twelve years. 
C)  two, three, and five years. 
D)  two, three, and five weeks.

Question 4

Research has found that the options market is:

Accepted Answer

A)  efficient before controlling for transaction costs. 
B)  efficient after controlling for transaction costs. 
C)  highly inefficient. 
D)  none of the above 
A)  efficient before controlling for transaction costs. 
B)  efficient after controlling for transaction costs. 
C)  highly inefficient. 
D)  none of the above

Question 5

Since futures contracts are traded on an exchange,the exchange will always take the "other side" of the transaction in terms of accepting the credit risk.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

An MNC frequently uses either forward or futures contracts to hedge its exposure to foreign receivables.To do so,the MNC can either sell the foreign currency forward or sell futures.

Accepted Answer

A) True 
 B)False

Question 8

A European option can only be exercised at the expiration date,while an American option can be exercised any time prior to the expiration date.

Accepted Answer

A) True 
 B)False

Question 9

If an investor who has previously purchased a futures contract wishes to liquidate his or her position,he or she would sell an identical futures contract with the same settlement date.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Forward contracts are the best technique for managing exposure arising from project bidding.

Accepted Answer

A) True 
 B)False

Question 12

When the futures price on euros is below the forward rate on euros for the same settlement date,astute investors may attempt to simultaneously __________ euros forward and __________ euro futures.

Accepted Answer

A)  sell;sell 
B)  buy;sell 
C)  sell;buy 
D)  buy;buy 
A)  sell;sell 
B)  buy;sell 
C)  sell;buy 
D)  buy;buy

Question 13

Which of the following is true of options

Accepted Answer

A)  The writer decides whether the option will be exercised. 
B)  The writer pays the buyer the option premium. 
C)  The buyer decides if the option will be exercised. 
D)  More than one of these. 
A)  The writer decides whether the option will be exercised. 
B)  The writer pays the buyer the option premium. 
C)  The buyer decides if the option will be exercised. 
D)  More than one of these.

Question 14

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

Question 15

It is possible to have an opportunity loss when using futures to hedge.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not true regarding options

Accepted Answer

A)  Options are traded on exchanges, never over-the-counter. 
B)  Similar to futures contracts, margin requirements are normally imposed on option traders. 
C)  Although commissions for options are fixed per transaction, multiple contracts may be involved in a transaction, thus lowering the commission per contract. 
D)  Currency options can be classified as either put or call options. 
E)  All of the above are true. 
A)  Options are traded on exchanges, never over-the-counter. 
B)  Similar to futures contracts, margin requirements are normally imposed on option traders. 
C)  Although commissions for options are fixed per transaction, multiple contracts may be involved in a transaction, thus lowering the commission per contract. 
D)  Currency options can be classified as either put or call options. 
E)  All of the above are true.

Question 17

A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Accepted Answer

A) True 
 B)False

Question 18

Currency options are only traded on exchanges.That is,there is no over-the-counter market for options.

Accepted Answer

A) True 
 B)False

Question 19

A firm sells a currency futures contract,then decides before the settlement date that it no longer wants to maintain such a position.  It can close out its position by:

Accepted Answer

A)  buying an identical futures contract. 
B)  selling an identical futures contract. 
C)  buying a futures contract with a different settlement date. 
D)  selling a futures contract for a different amount of currency. 
E)  purchasing a put option contract in the same currency. 
A)  buying an identical futures contract. 
B)  selling an identical futures contract. 
C)  buying a futures contract with a different settlement date. 
D)  selling a futures contract for a different amount of currency. 
E)  purchasing a put option contract in the same currency.

Question 20

Frank is an option speculator.He anticipates the Danish kroner to appreciate from its current level of $.19 to $.21.Currently,kroner call options are available with an exercise price of $.18 and a premium of $.02.Should Frank attempt to buy this option If the future spot rate of the Danish kroner is indeed $.21,what is his profit or loss per unit

Accepted Answer

A)  no;-$0.01. 
B)  yes;$0.01. 
C)  yes;-$0.01. 
D)  yes;$0.03. 
A)  no;-$0.01. 
B)  yes;$0.01. 
C)  yes;-$0.01. 
D)  yes;$0.03.

When currency options are not standardized and traded over-the-counter,there is liquidity and a __ bid/ask spread.

Margin requirements are deposits placed by investors in futures contracts with their respective brokerage firms when they take their position.They are intended to minimize credit risk associated with futures contracts.

As mentioned in the text,the most common maturities for forward rates are:

Research has found that the options market is:

Since futures contracts are traded on an exchange,the exchange will always take the "other side" of the transaction in terms of accepting the credit risk.

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

An MNC frequently uses either forward or futures contracts to hedge its exposure to foreign receivables.To do so,the MNC can either sell the foreign currency forward or sell futures.

A European option can only be exercised at the expiration date,while an American option can be exercised any time prior to the expiration date.

If an investor who has previously purchased a futures contract wishes to liquidate his or her position,he or she would sell an identical futures contract with the same settlement date.

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

Forward contracts are the best technique for managing exposure arising from project bidding.

When the futures price on euros is below the forward rate on euros for the same settlement date,astute investors may attempt to simultaneously euros forward and euro futures.

Which of the following is true of options

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

It is possible to have an opportunity loss when using futures to hedge.

Which of the following is not true regarding options

A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Currency options are only traded on exchanges.That is,there is no over-the-counter market for options.

A firm sells a currency futures contract,then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:

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

When currency options are not standardized and traded over-the-counter,there is ______ liquidity and a ________ bid/ask spread.

Margin requirements are deposits placed by investors in futures contracts with their respective brokerage firms when they take their position.They are intended to minimize credit risk associated with futures contracts.

As mentioned in the text,the most common maturities for forward rates are:

Research has found that the options market is:

Since futures contracts are traded on an exchange,the exchange will always take the "other side" of the transaction in terms of accepting the credit risk.

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

An MNC frequently uses either forward or futures contracts to hedge its exposure to foreign receivables.To do so,the MNC can either sell the foreign currency forward or sell futures.

A European option can only be exercised at the expiration date,while an American option can be exercised any time prior to the expiration date.

If an investor who has previously purchased a futures contract wishes to liquidate his or her position,he or she would sell an identical futures contract with the same settlement date.

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

Forward contracts are the best technique for managing exposure arising from project bidding.

When the futures price on euros is below the forward rate on euros for the same settlement date,astute investors may attempt to simultaneously __________ euros forward and __________ euro futures.

Which of the following is true of options

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

It is possible to have an opportunity loss when using futures to hedge.

Which of the following is not true regarding options

A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Currency options are only traded on exchanges.That is,there is no over-the-counter market for options.

A firm sells a currency futures contract,then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:

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 currency options are not standardized and traded over-the-counter,there is liquidity and a __ bid/ask spread.

When the futures price on euros is below the forward rate on euros for the same settlement date,astute investors may attempt to simultaneously euros forward and euro futures.