Exam 5: Currency Derivatives

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

(Multiple Choice)

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Question 41

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.

(Multiple Choice)

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Question 42

If you have a position where you might be obligated to sell pounds, you are:

(Multiple Choice)

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Question 43

Assume that a speculator received news that makes her believe that the yen will appreciate or depreciate substantially in the near future, but she is not certain of the direction. Also assume that the exercise prices of call and put options are the same. The most appropriate method for speculation is a and it may be achieved by .

(Multiple Choice)

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Question 44

Which of the following is true regarding the currency options market?

(Multiple Choice)

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Question 45

Which of the following does not represent the risk from using forward contracts?

(Multiple Choice)

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Question 46

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.

(True/False)

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Question 47

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:

(Multiple Choice)

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Question 48

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

(True/False)

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Question 49

The the existing spot price relative to the strike price, the valuable the put options will be.

(Multiple Choice)

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Question 50

Options can be traded on an exchange or over the counter

(True/False)

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Question 51

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

(Multiple Choice)

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Question 52

Which of the following is true?

(Multiple Choice)

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Question 53

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 put option premium is the price.

(Multiple Choice)

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Question 54

Due to put-call parity, we can use the same formula to price calls and puts.

(True/False)

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Question 55

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

(True/False)

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Question 56

The premium of a currency put option should increase if:

(Multiple Choice)

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Question 57

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.

(Multiple Choice)

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Question 58

If the spot rate of the British pound is $1.50, and the one-year forward rate has a discount of 3 percent, the one-year forward rate is $____.

(Multiple Choice)

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Question 59

Frank is an option speculator. He anticipates the Danish kroner will 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?

(Multiple Choice)

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Question 60

Showing 41 - 60 of 161

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

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.

If you have a position where you might be obligated to sell pounds, you are:

Which of the following is true regarding the currency options market?

Which of the following does not represent the risk from using forward contracts?

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.

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:

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

The the existing spot price relative to the strike price, the valuable the put options will be.

Options can be traded on an exchange or over the counter

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

Which of the following is true?

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 put option premium is the price.

Due to put-call parity, we can use the same formula to price calls and puts.

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

The premium of a currency put option should increase if:

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 spot rate of the British pound is $1.50, and the one-year forward rate has a discount of 3 percent, the one-year forward rate is $____.

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

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 5: Currency Derivatives

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

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.

If you have a position where you might be obligated to sell pounds, you are:

Which of the following is true regarding the currency options market?

Which of the following does not represent the risk from using forward contracts?​

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.

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:

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

The ____ the existing spot price relative to the strike price, the ____ valuable the put options will be.

Options can be traded on an exchange or over the counter

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

Which of the following is true?

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 put option premium is the ____ price.

Due to put-call parity, we can use the same formula to price calls and puts.

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

The premium of a currency put option should increase if:

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 spot rate of the British pound is $1.50, and the one-year forward rate has a discount of 3 percent, the one-year forward rate is $____.

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

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Which of the following does not represent the risk from using forward contracts?

The the existing spot price relative to the strike price, the valuable the put options will be.

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 put option premium is the price.

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.