Question 1

Other things equal, the price of an option goes up as the volatility of the option decreases.

Accepted Answer

A) True 
 B)False

Question 2

A call option whose exercise price exceeds the spot rate is said to be ________.

Accepted Answer

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

Question 3

As a general statement, it is safe to say that businesses generally use the ________ for foreign currency option contracts, and individuals and financial institutions typically use the ________.

Accepted Answer

A)  exchange markets; over-the-counter 
B)  over-the-counter; exchange markets 
C)  private; government sponsored 
D)  government sponsored; private 
A)  exchange markets; over-the-counter 
B)  over-the-counter; exchange markets 
C)  private; government sponsored 
D)  government sponsored; private

Question 4

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

Accepted Answer

A)  $2.03/£ 
B)  $2.07/£ 
C)  $2.05/£ 
D)  The answer depends upon if this is a long or a short call option. 
A)  $2.03/£ 
B)  $2.07/£ 
C)  $2.05/£ 
D)  The answer depends upon if this is a long or a short call option.

Question 5

The amount that an investor pays to obtain an option may be described as the ________.

Accepted Answer

A)  premium 
B)  price 
C)  cost 
D)  all of the above 
A)  premium 
B)  price 
C)  cost 
D)  all of the above

Question 6

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 her potential gain is ________ and her potential loss is ________.

Accepted Answer

A)  $100,000, unlimited 
B)  unlimited, unlimited 
C)  $100,000, $100,000 
D)  unlimited, $100,000 
A)  $100,000, unlimited 
B)  unlimited, unlimited 
C)  $100,000, $100,000 
D)  unlimited, $100,000

Question 7

The buyer of a long call 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 an unlimited maximum gain potential. 
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 an unlimited maximum gain potential. 
D)  all of the above.

Question 8

A call option whose exercise price is less than the spot rate is said to be ________.

Accepted Answer

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

Question 9

The main advantage(s) of over-the-counter foreign currency options over exchange traded options is(are)

Accepted Answer

A)  expiration dates tailored to the needs of the client. 
B)  amounts that are tailor made. 
C)  client desired expiration dates. 
D)  all of the above. 
A)  expiration dates tailored to the needs of the client. 
B)  amounts that are tailor made. 
C)  client desired expiration dates. 
D)  all of the above.

Question 10

Assume that a call option has an exercise price of $1.50/³. At a spot price of $1.45/³, the call option has ________.

Accepted Answer

A)  a time value of $0.04 
B)  a time value of $0.00 
C)  an intrinsic value of $0.00 
D)  an intrinsic value of -$0.04 
A)  a time value of $0.04 
B)  a time value of $0.00 
C)  an intrinsic value of $0.00 
D)  an intrinsic value of -$0.04

Question 11

About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller.

Accepted Answer

A)  0% 
B)  5% 
C)  50% 
D)  95% 
A)  0% 
B)  5% 
C)  50% 
D)  95%

Question 12

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?

Accepted Answer

Foreign currency futures are standardize

Question 13

Jack Hemmings bought a 3-month British pound futures contract for $1.4400/£ only to see the dollar appreciate to a value of $1.4250 at which time he sold the pound futures. If each pound futures contract is for an amount of £62,500, how much money did Jack gain or lose from his speculation with pound futures?

Accepted Answer

A)  $937.50 loss 
B)  $937.50 gain 
C)  £937.50 loss 
D)  £937.50 gain 
A)  $937.50 loss 
B)  $937.50 gain 
C)  £937.50 loss 
D)  £937.50 gain

Question 14

Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a

Accepted Answer

A)  collateralized deposit. 
B)  marked market sum. 
C)  margin. 
D)  settlement. 
A)  collateralized deposit. 
B)  marked market sum. 
C)  margin. 
D)  settlement.

Question 15

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 would earn a higher rate of return by buying yen and a forward contract than if she had invested her money in 6-month US Treasury securities at an annual rate of 2.50%.

Accepted Answer

A) True 
 B)False

Question 16

Foreign currency options are available both over-the-counter and on organized exchanges.

Accepted Answer

A) True 
 B)False

Question 17

Currency futures contracts have become standard fare and trade readily in the world money centers.

Accepted Answer

A) True 
 B)False

Other things equal, the price of an option goes up as the volatility of the option decreases.

A call option whose exercise price exceeds the spot rate is said to be ________.

As a general statement, it is safe to say that businesses generally use the for foreign currency option contracts, and individuals and financial institutions typically use the .

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

The amount that an investor pays to obtain an option may be described as the ________.

The buyer of a long call option

A call option whose exercise price is less than the spot rate is said to be ________.

The main advantage(s) of over-the-counter foreign currency options over exchange traded options is(are)

Assume that a call option has an exercise price of $1.50/³. At a spot price of $1.45/³, the call option has ________.

About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller.

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?

Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a

Foreign currency options are available both over-the-counter and on organized exchanges.

Currency futures contracts have become standard fare and trade readily in the world money centers.

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

Other things equal, the price of an option goes up as the volatility of the option decreases.

A call option whose exercise price exceeds the spot rate is said to be ________.

As a general statement, it is safe to say that businesses generally use the ________ for foreign currency option contracts, and individuals and financial institutions typically use the ________.

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

The amount that an investor pays to obtain an option may be described as the ________.

The buyer of a long call option

A call option whose exercise price is less than the spot rate is said to be ________.

The main advantage(s) of over-the-counter foreign currency options over exchange traded options is(are)

Assume that a call option has an exercise price of $1.50/³. At a spot price of $1.45/³, the call option has ________.

About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller.

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?

Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a

Foreign currency options are available both over-the-counter and on organized exchanges.

Currency futures contracts have become standard fare and trade readily in the world money centers.

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

As a general statement, it is safe to say that businesses generally use the for foreign currency option contracts, and individuals and financial institutions typically use the .