Question 1

If a currency's forward rate exhibits a premium, that currency is forced to depreciate.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The disadvantage of a long strangle relative to a long straddle is that the underlying currency has to fluctuate more prior to expiration.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

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 7

The choice of a basic versus a conditional option depends on expectations about the currency's exchange rate over the period of concern.

Accepted Answer

A) True 
 B)False

Question 8

Currency options are commonly traded through the ____ system.

Accepted Answer

A) robot 
B) Euro 
C) Globex 
D) Scope 
A) robot 
B) Euro 
C) Globex 
D) Scope

Question 9

On January 1, Madison Co. ordered raw material from Japan and agreed to pay 100 million yen for this order on April 1. It negotiated a 3-month forward contract to obtain 100 million Japanese yen on that date at $.009. On February 1, the Japanese firm informed Madison Co. that it wouldn't be able to fulfill the order. The Japanese yen spot rate on February 1 is $.0087, and the 2-month forward rate exhibits a 3 percent discount. To offset its existing contract, Madison Co. will negotiate a forward contract to ____ for the date of April 1, and the profit/loss generated from this transaction is a ____ U.S. dollars.

Accepted Answer

A) sell yen; gain of $60,000 
B) sell yen; loss of $60,000 
C) buy yen; gain of $30,000 
D) to buy yen; loss of $30,000 
A) sell yen; gain of $60,000 
B) sell yen; loss of $60,000 
C) buy yen; gain of $30,000 
D) to buy yen; loss of $30,000

Question 10

A straddle involves the purchase of either two call or two put options at the same exercise price.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

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 13

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.

Accepted Answer

A) spot and exercise; exercise 
B) spot and exercise; spot 
C) exercise and spot; exercise 
D) exercise and spot; spot 
A) spot and exercise; exercise 
B) spot and exercise; spot 
C) exercise and spot; exercise 
D) exercise and spot; spot

Question 14

Non-deliverable forward contracts (NDFs) can be used to hedge existing positions in foreign currencies that are not convertible into dollars.

Accepted Answer

A) True 
 B)False

Question 15

A speculator in futures contracts who expects the value of a foreign currency to depreciate would likely sell futures contracts.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is true?

Accepted Answer

A) Most forward contracts between firms and banks are for speculative purposes. 
B) A security deposit is not required for futures contracts. 
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) A security deposit is not required for futures contracts. 
C) The forward contracts offered by banks have maturities for only four possible dates in the future. 
D) none of the above

Question 17

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?​

Accepted Answer

A) 7.46 percent premium 
B) 7.46 percent discount 
C) 7.75 percent premium 
D) 7.75 percent discount 
A) 7.46 percent premium 
B) 7.46 percent discount 
C) 7.75 percent premium 
D) 7.75 percent discount

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Currency futures can be used by MNCs to hedge payables. That is, an MNC would ____ futures to hedge a foreign payable position. Also, currency futures can be used for speculation. For example, a speculator expecting a currency to appreciate would ____ futures.

Accepted Answer

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

Question 20

A put option on Swiss franc has a strike (exercise) price of $.92. The present exchange rate is $.89. 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.

If a currency's forward rate exhibits a premium, that currency is forced to depreciate.

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

The disadvantage of a long strangle relative to a long straddle is that the underlying currency has to fluctuate more prior to expiration.

Which of the following is true of options?

Which of the following is not true regarding options?

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:

The choice of a basic versus a conditional option depends on expectations about the currency's exchange rate over the period of concern.

Currency options are commonly traded through the ____ system.

A straddle involves the purchase of either two call or two put options at the same exercise price.

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.

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.

Non-deliverable forward contracts (NDFs) can be used to hedge existing positions in foreign currencies that are not convertible into dollars.

A speculator in futures contracts who expects the value of a foreign currency to depreciate would likely sell futures contracts.

Which of the following is true?

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?

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

Currency futures can be used by MNCs to hedge payables. That is, an MNC would futures to hedge a foreign payable position. Also, currency futures can be used for speculation. For example, a speculator expecting a currency to appreciate would futures.

A put option on Swiss franc has a strike (exercise) price of $.92. The present exchange rate is $.89. This put option can be referred to as:

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

If a currency's forward rate exhibits a premium, that currency is forced to depreciate.

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

The disadvantage of a long strangle relative to a long straddle is that the underlying currency has to fluctuate more prior to expiration.

Which of the following is true of options?

Which of the following is not true regarding options?

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:

The choice of a basic versus a conditional option depends on expectations about the currency's exchange rate over the period of concern.

Currency options are commonly traded through the ____ system.

A straddle involves the purchase of either two call or two put options at the same exercise price.

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.

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.

Non-deliverable forward contracts (NDFs) can be used to hedge existing positions in foreign currencies that are not convertible into dollars.

A speculator in futures contracts who expects the value of a foreign currency to depreciate would likely sell futures contracts.

Which of the following is true?

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?​

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

Currency futures can be used by MNCs to hedge payables. That is, an MNC would ____ futures to hedge a foreign payable position. Also, currency futures can be used for speculation. For example, a speculator expecting a currency to appreciate would ____ futures.

A put option on Swiss franc has a strike (exercise) price of $.92. The present exchange rate is $.89. This put option can be referred to as:

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

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.

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.

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?

Currency futures can be used by MNCs to hedge payables. That is, an MNC would futures to hedge a foreign payable position. Also, currency futures can be used for speculation. For example, a speculator expecting a currency to appreciate would futures.