Question 1

Which of the following is NOT true for the writer of a put option?

Accepted Answer

A)  The maximum loss is limited to the strike price of the underlying asset less the premium. 
B)  The gain or loss is equal to but of the opposite sign of the buyer of a put option. 
C)  The maximum gain is the amount of the premium. 
D)  All of the above are true. 
A)  The maximum loss is limited to the strike price of the underlying asset less the premium. 
B)  The gain or loss is equal to but of the opposite sign of the buyer of a put option. 
C)  The maximum gain is the amount of the premium. 
D)  All of the above are true. D

Question 2

A speculator that has ________ a futures contract has taken a ________ position.

Accepted Answer

A)  sold; long 
B)  purchased; short 
C)  sold; short 
D)  purchased; sold 
A)  sold; long 
B)  purchased; short 
C)  sold; short 
D)  purchased; sold C

Question 3

Financial derivatives are powerful tools that can be used by management for purposes of

Accepted Answer

A)  speculation. 
B)  hedging. 
C)  human resource management. 
D)  A and B above. 
A)  speculation. 
B)  hedging. 
C)  human resource management. 
D)  A and B above. D

Question 4

Most option profits and losses are realized through taking actual delivery of the currency rather than offsetting contracts.

Accepted Answer

A) True 
 B)False

Question 5

The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder.

Accepted Answer

A) True 
 B)False

Question 6

Volatilities are the only judgmental aspect of currency option pricing and are therefore, the least important component therein.

Accepted Answer

A) True 
 B)False

Question 7

The value of a European style call option is the sum of two components, the

Accepted Answer

A)  present value plus the intrinsic value. 
B)  time value plus the present value. 
C)  intrinsic value plus the time value. 
D)  the intrinsic value plus the standard deviation. 
A)  present value plus the intrinsic value. 
B)  time value plus the present value. 
C)  intrinsic value plus the time value. 
D)  the intrinsic value plus the standard deviation.

Question 8

The price at which an option can be exercised is called the ________.

Accepted Answer

A)  premium 
B)  spot rate 
C)  strike price 
D)  commission 
A)  premium 
B)  spot rate 
C)  strike price 
D)  commission

Question 9

Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. If Andrea buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$ she will earn a profit of ________.

Accepted Answer

A)  $146.09 
B)  $101,460.94 
C)  $1460.94 
D)  nothing; she will lose money 
A)  $146.09 
B)  $101,460.94 
C)  $1460.94 
D)  nothing; she will lose money

Question 10

Volatility cannot be directly observed for calculation purposes of the option pricing model. Therefore, it may be determined from

Accepted Answer

A)  historic volatility. 
B)  forward-looking volatility. 
C)  implied volatility. 
D)  any of the above. 
A)  historic volatility. 
B)  forward-looking volatility. 
C)  implied volatility. 
D)  any of the above.

Question 11

Dash Brevenshure works for the currency trading unit of ING Bank in London. He speculates that in the coming months the dollar will rise sharply vs. the pound. What should Dash do to act on his speculation?

Accepted Answer

A)  Buy a call on the pound. 
B)  Sell a call on the pound. 
C)  Buy a put on the pound. 
D)  Sell a put on the pound. 
A)  Buy a call on the pound. 
B)  Sell a call on the pound. 
C)  Buy a put on the pound. 
D)  Sell a put on the pound.

Question 12

Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. If Andrea's expectations are correct, then she could profit in the forward market by ________ and then ________.

Accepted Answer

A)  buying yen for ¥128.00/$, selling yen at ¥128.53/$ 
B)  buying yen for ¥128.53/$, selling yen at ¥128.00/$ 
C)  There is not enough information to answer this question 
D)  She could not profit in the forward market. 
A)  buying yen for ¥128.00/$, selling yen at ¥128.53/$ 
B)  buying yen for ¥128.53/$, selling yen at ¥128.00/$ 
C)  There is not enough information to answer this question 
D)  She could not profit in the forward market.

Question 13

A call option on euros is written with a strike price of $1.30/euro. Which spot price maximizes your profit if you choose to exercise the option before maturity?

Accepted Answer

A)  $1.20/euro 
B)  $1.25/euro 
C)  $1.30/euro 
D)  $1.35/euro 
A)  $1.20/euro 
B)  $1.25/euro 
C)  $1.30/euro 
D)  $1.35/euro

Question 14

Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. Andrea should ________ at ________ to profit from changing currency values.

Accepted Answer

A)  buy yen; at the forward rate 
B)  buy dollars; at the forward rate 
C)  sell yen; at the forward rate 
D)  There is not enough information to answer this question. 
A)  buy yen; at the forward rate 
B)  buy dollars; at the forward rate 
C)  sell yen; at the forward rate 
D)  There is not enough information to answer this question.

Question 15

The buyer of a long put option

Accepted Answer

A)  has a maximum loss equal to the premium paid. 
B)  has a gain equal to but opposite in sign to the writer of the option. 
C)  has maximum gain potential limited to the difference between the strike price and the premium paid. 
D)  all of the above. 
A)  has a maximum loss equal to the premium paid. 
B)  has a gain equal to but opposite in sign to the writer of the option. 
C)  has maximum gain potential limited to the difference between the strike price and the premium paid. 
D)  all of the above.

Question 16

Which of the following statements regarding currency futures contracts and forward contracts is NOT true?

Accepted Answer

A)  A futures contract is a standardized amount per currency whereas the forward contact is for any size desired. 
B)  A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year. 
C)  Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages. 
D)  All of the above are true. 
A)  A futures contract is a standardized amount per currency whereas the forward contact is for any size desired. 
B)  A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year. 
C)  Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages. 
D)  All of the above are true.

Question 17

When reading the futures quotation in the financial section of the newspaper, the column heading indicating the number of contracts outstanding is called ________.

Accepted Answer

A)  contracts outstanding 
B)  settle 
C)  open interest 
D)  short positions 
A)  contracts outstanding 
B)  settle 
C)  open interest 
D)  short positions

Question 18

The time value is asymmetric in value as you move away from the strike price. (I.e., the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price.)

Accepted Answer

A) True 
 B)False

Question 19

An option whose exercise price is equal to the spot rate is said to be ________.

Accepted Answer

A)  in-the-money 
B)  at-the-money 
C)  out-of-the-money 
D)  on-the-spot 
A)  in-the-money 
B)  at-the-money 
C)  out-of-the-money 
D)  on-the-spot

Question 20

The major difference between currency futures and forward contracts is that futures contracts are standardized for ease of trading on an exchange market whereas forward contracts are specialized and tailored to meet the needs of clients.

Accepted Answer

A) True 
 B)False

Which of the following is NOT true for the writer of a put option?

A speculator that has a futures contract has taken a position.

Financial derivatives are powerful tools that can be used by management for purposes of

Most option profits and losses are realized through taking actual delivery of the currency rather than offsetting contracts.

The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder.

Volatilities are the only judgmental aspect of currency option pricing and are therefore, the least important component therein.

The value of a European style call option is the sum of two components, the

The price at which an option can be exercised is called the ________.

Volatility cannot be directly observed for calculation purposes of the option pricing model. Therefore, it may be determined from

Dash Brevenshure works for the currency trading unit of ING Bank in London. He speculates that in the coming months the dollar will rise sharply vs. the pound. What should Dash do to act on his speculation?

A call option on euros is written with a strike price of $1.30/euro. Which spot price maximizes your profit if you choose to exercise the option before maturity?

The buyer of a long put option

Which of the following statements regarding currency futures contracts and forward contracts is NOT true?

When reading the futures quotation in the financial section of the newspaper, the column heading indicating the number of contracts outstanding is called ________.

The time value is asymmetric in value as you move away from the strike price. (I.e., the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price.)

An option whose exercise price is equal to the spot rate is said to be ________.

The major difference between currency futures and forward contracts is that futures contracts are standardized for ease of trading on an exchange market whereas forward contracts are specialized and tailored to meet the needs of clients.

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters

Exam 8: Foreign Currency Derivatives

Which of the following is NOT true for the writer of a put option?

A speculator that has ________ a futures contract has taken a ________ position.

Financial derivatives are powerful tools that can be used by management for purposes of

Most option profits and losses are realized through taking actual delivery of the currency rather than offsetting contracts.

The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder.

Volatilities are the only judgmental aspect of currency option pricing and are therefore, the least important component therein.

The value of a European style call option is the sum of two components, the

The price at which an option can be exercised is called the ________.

Volatility cannot be directly observed for calculation purposes of the option pricing model. Therefore, it may be determined from

Dash Brevenshure works for the currency trading unit of ING Bank in London. He speculates that in the coming months the dollar will rise sharply vs. the pound. What should Dash do to act on his speculation?

A call option on euros is written with a strike price of $1.30/euro. Which spot price maximizes your profit if you choose to exercise the option before maturity?

The buyer of a long put option

Which of the following statements regarding currency futures contracts and forward contracts is NOT true?

When reading the futures quotation in the financial section of the newspaper, the column heading indicating the number of contracts outstanding is called ________.

The time value is asymmetric in value as you move away from the strike price. (I.e., the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price.)

An option whose exercise price is equal to the spot rate is said to be ________.

The major difference between currency futures and forward contracts is that futures contracts are standardized for ease of trading on an exchange market whereas forward contracts are specialized and tailored to meet the needs of clients.

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters

A speculator that has a futures contract has taken a position.