Question 1

Open interest in currency futures contracts

Accepted Answer

A) tends to be greatest for the near-term contracts. 
B) tends to be greatest for the longer-term contracts. 
C) typically decreases with the term to maturity of most futures contracts. 
D) both a and c 
A) tends to be greatest for the near-term contracts. 
B) tends to be greatest for the longer-term contracts. 
C) typically decreases with the term to maturity of most futures contracts. 
D) both a and c

Question 2

The "open interest" shown in currency futures quotations is

Accepted Answer

A) the total number of people indicating interest in buying the contracts in the near future. 
B) the total number of people indicating interest in selling the contracts in the near future. 
C) the total number of people indicating interest in buying or selling the contracts in the near future. 
D) the total number of long or short contracts outstanding for the particular delivery month. 
A) the total number of people indicating interest in buying the contracts in the near future. 
B) the total number of people indicating interest in selling the contracts in the near future. 
C) the total number of people indicating interest in buying or selling the contracts in the near future. 
D) the total number of long or short contracts outstanding for the particular delivery month.

Question 3

Today's settlement price on a Chicago Mercantile Exchange (CME)Yen futures contract is $0.8011/¥100.Your margin account currently has a balance of $2,000.The next three days' settlement prices are $0.8057/¥100,$0.7996/¥100,and $0.7985/¥100.(The contractual size of one CME Yen contract is ¥12,500,000).If you have a long position in one futures contract,the changes in the margin account from daily marking-to-market,will result in the balance of the margin account after the third day to be

Accepted Answer

A) $1,425. 
B) $1,675. 
C) $2,000. 
D) $3,425. 
A) $1,425. 
B) $1,675. 
C) $2,000. 
D) $3,425.

Question 4

The Black-Scholes option pricing formulae

Accepted Answer

A) are used widely in practice, especially by international banks in trading OTC options. 
B) are not widely used outside of the academic world. 
C) work well enough, but are not used in the real world because no one has the time to flog their calculator for five minutes on the trading floor. 
D) none of the above 
A) are used widely in practice, especially by international banks in trading OTC options. 
B) are not widely used outside of the academic world. 
C) work well enough, but are not used in the real world because no one has the time to flog their calculator for five minutes on the trading floor. 
D) none of the above

Question 5

Find the input d1 of the Black-Scholes price of a six-month call option written on €100,000 with a strike price of $1.00 = €1.00.The current exchange rate is $1.25 = €1.00; The U.S.risk-free rate is 5% over the period and the euro-zone risk-free rate is 4%.The volatility of the underlying asset is 10.7 percent.

Accepted Answer

A) d1 = 0.103915 
B) d1 = 2.9871 
C) d1 = -0.0283 
D) none of the above 
A) d1 = 0.103915 
B) d1 = 2.9871 
C) d1 = -0.0283 
D) none of the above

Question 6

The same call from the last question (a 1-period call option on €10,000 with a strike price of $12,500.could also be thought of as a 1-period at-the-money put option on $12,500 with a strike price of €10,000.
As before,the spot exchange rate is €1.00 = $1.25.In the next period,the euro can increase in dollar value to $2.00 or fall to $1.00.The interest rate in dollars is i$ = 27.50%; the interest rate in euro is i€ = 2%.
Draw the binomial tree for this put option.

Accepted Answer

Put the tree in this

Question 7

Suppose that you have written a call option on €10,000 with a strike price in dollars.Suppose further that the hedge ratio is ½.Which of the following would be an appropriate hedge for a short position in this call option?

Accepted Answer

A) Buy €10,000 today at today's spot exchange rate. 
B) Buy €5,000 today at today's spot exchange rate. 
C) Agree to buy €5,000 at the maturity of the option at the forward exchange rate for the maturity of the option that prevails today . 
D) Buy the present value of €5,000 discounted at i€ for the maturity of the option. 
E) Both c and d would work.
F)None of the above 
A) Buy €10,000 today at today's spot exchange rate. 
B) Buy €5,000 today at today's spot exchange rate. 
C) Agree to buy €5,000 at the maturity of the option at the forward exchange rate for the maturity of the option that prevails today . 
D) Buy the present value of €5,000 discounted at i€ for the maturity of the option. 
E) Both c and d would work.
F)None of the above

Question 8

If you think that the dollar is going to appreciate against the euro,you should

Accepted Answer

A) buy put options on the euro. 
B) sell call options on the euro. 
C) buy call options on the euro. 
D) none of the above 
A) buy put options on the euro. 
B) sell call options on the euro. 
C) buy call options on the euro. 
D) none of the above

Question 9

Three days ago,you entered into a futures contract to sell €62,500 at $1.50 per €.Over the past three days the contract has settled at $1.50,$1.52,and $1.54.How much have you made or lost?

Accepted Answer

A) Lost $0.04 per € or $2,500 
B) Made $0.04 per € or $2,500 
C) Lost $0.06 per € or $3,750 
D) None of the above 
A) Lost $0.04 per € or $2,500 
B) Made $0.04 per € or $2,500 
C) Lost $0.06 per € or $3,750 
D) None of the above

Question 10

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in the exchange rate S($/€)?

Accepted Answer

A) Decrease the value of calls and puts ceteris paribus 
B) Increase the value of calls and puts ceteris paribus 
C) Decrease the value of calls, increase the value of puts ceteris paribus 
D) Increase the value of calls, decrease the value of puts ceteris paribus 
A) Decrease the value of calls and puts ceteris paribus 
B) Increase the value of calls and puts ceteris paribus 
C) Decrease the value of calls, increase the value of puts ceteris paribus 
D) Increase the value of calls, decrease the value of puts ceteris paribus

Question 11

For European options,what of the effect of an increase in the strike price E?

Accepted Answer

A) Decrease the value of calls and puts ceteris paribus 
B) Increase the value of calls and puts ceteris paribus 
C) Decrease the value of calls, increase the value of puts ceteris paribus 
D) Increase the value of calls, decrease the value of puts ceteris paribus 
A) Decrease the value of calls and puts ceteris paribus 
B) Increase the value of calls and puts ceteris paribus 
C) Decrease the value of calls, increase the value of puts ceteris paribus 
D) Increase the value of calls, decrease the value of puts ceteris paribus

Question 12

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in r$ relative to r€?

Accepted Answer

A) Decrease the value of calls and puts ceteris paribus 
B) Increase the value of calls and puts ceteris paribus 
C) Decrease the value of calls, increase the value of puts ceteris paribus 
D) Increase the value of calls, decrease the value of puts ceteris paribus 
A) Decrease the value of calls and puts ceteris paribus 
B) Increase the value of calls and puts ceteris paribus 
C) Decrease the value of calls, increase the value of puts ceteris paribus 
D) Increase the value of calls, decrease the value of puts ceteris paribus

Question 13

Which equation is used to define the futures price?

Accepted Answer

A)  $\frac { F _ { 1 } ( \$ / € ) } { S _ { 0 } ( \$ / € ) } = \frac { \left( 1 + i _ { \$ } \right) } { \left( 1 + i _ { € } \right) }$ 
B)  $F _ { 1 } = \frac { C _ { u T } - C _ { d T } } { S _ { 0 } ( u - d ) }$ 
C)  $F _ { 1 } = \frac { \ln ( F / E ) + .5 \sigma ^ { 2 } T } { \sigma \sqrt { T } }$ 
D)  $\frac { F _ { 1 } ( \$ / € ) } { S _ { 0 } ( \$ / \epsilon ) } = \frac { \left( 1 + i _ { € } \right) } { \left( 1 + i _ { \$ } \right) }$ 
E)  $q = \frac { F _ { 1 } ( \$ / € ) - d \times S _ { 0 } ( \$ / € ) } { u \times S _ { 0 } ( \$ / € ) - d \times S _ { 0 } ( \$ / € ) }$ 
A)  $\frac { F _ { 1 } ( \$ / € ) } { S _ { 0 } ( \$ / € ) } = \frac { \left( 1 + i _ { \$ } \right) } { \left( 1 + i _ { € } \right) }$ 
B)  $F _ { 1 } = \frac { C _ { u T } - C _ { d T } } { S _ { 0 } ( u - d ) }$ 
C)  $F _ { 1 } = \frac { \ln ( F / E ) + .5 \sigma ^ { 2 } T } { \sigma \sqrt { T } }$ 
D)  $\frac { F _ { 1 } ( \$ / € ) } { S _ { 0 } ( \$ / \epsilon ) } = \frac { \left( 1 + i _ { € } \right) } { \left( 1 + i _ { \$ } \right) }$ 
E)  $q = \frac { F _ { 1 } ( \$ / € ) - d \times S _ { 0 } ( \$ / € ) } { u \times S _ { 0 } ( \$ / € ) - d \times S _ { 0 } ( \$ / € ) }$

Question 14

Use the binomial option pricing model to find the value of a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 .
The current interest rates are i€ = 3% and are i£ = 4%.
Choose the answer closest to yours.

Accepted Answer

A) €3,275 
B) €2,500 
C) €3,373 
D) €3,243 
A) €3,275 
B) €2,500 
C) €3,373 
D) €3,243

Question 15

Which of the follow options strategies are consistent in their belief about the future behavior of the underlying asset price?

Accepted Answer

A) Selling calls and selling puts 
B) Buying calls and buying puts 
C) Buying calls and selling puts 
D) None of the above 
A) Selling calls and selling puts 
B) Buying calls and buying puts 
C) Buying calls and selling puts 
D) None of the above

Question 16

For an American call option,A and B in the graph are

Accepted Answer

A) time value and intrinsic value. 
B) intrinsic value and time value. 
C) in-the-money and out-of-the money. 
D) none of the above 
A) time value and intrinsic value. 
B) intrinsic value and time value. 
C) in-the-money and out-of-the money. 
D) none of the above

Question 17

Find the value today of your replicating today portfolio in euro.

Accepted Answer

The answer of Find the value today of your replicating...

Question 18

Find the value of a one-year call option on €10,000 with a strike price of $15,000.In one year the exchange rate (currently S0($/€)= $1.50/€)can increase by 60% or decrease by 37.5% .The current one-year interest rate in the U.S.is i$ = 4% and the current one-year interest rate in the euro zone is i€ = 4%.

Accepted Answer

A) €1,525.52 
B) $3,328.40 
C) $4,992.60 
D) €2,218.94 
E) None of the above 
A) €1,525.52 
B) $3,328.40 
C) $4,992.60 
D) €2,218.94 
E) None of the above

Question 19

The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00.Consider a three-month American call option on €62,500 with a strike price of $1.50 = €1.00.If you pay an option premium of $5,000 to buy this call,at what exchange rate will you break-even?

Accepted Answer

A) $1.58 = €1.00 
B) $1.62 = €1.00 
C) $1.50 = €1.00 
D) $1.68 = €1.00 
A) $1.58 = €1.00 
B) $1.62 = €1.00 
C) $1.50 = €1.00 
D) $1.68 = €1.00

Question 20

If a currency futures contract (direct quote)is priced below the price implied by Interest Rate Parity (IRP),arbitrageurs could take advantage of the mispricing by simultaneously

Accepted Answer

A) going short in the futures contract, borrowing in the domestic currency, and going long in the foreign currency in the spot market. 
B) going short in the futures contract, lending in the domestic currency, and going long in the foreign currency in the spot market. 
C) going long in the futures contract, borrowing in the domestic currency, and going short in the foreign currency in the spot market. 
D) going long in the futures contract, borrowing in the foreign currency, and going long in the domestic currency, investing the proceeds at the local rate of interest. 
A) going short in the futures contract, borrowing in the domestic currency, and going long in the foreign currency in the spot market. 
B) going short in the futures contract, lending in the domestic currency, and going long in the foreign currency in the spot market. 
C) going long in the futures contract, borrowing in the domestic currency, and going short in the foreign currency in the spot market. 
D) going long in the futures contract, borrowing in the foreign currency, and going long in the domestic currency, investing the proceeds at the local rate of interest.

Open interest in currency futures contracts

The "open interest" shown in currency futures quotations is

The Black-Scholes option pricing formulae

Suppose that you have written a call option on €10,000 with a strike price in dollars.Suppose further that the hedge ratio is ½.Which of the following would be an appropriate hedge for a short position in this call option?

If you think that the dollar is going to appreciate against the euro,you should

Three days ago,you entered into a futures contract to sell €62,500 at $1.50 per €.Over the past three days the contract has settled at $1.50,$1.52,and $1.54.How much have you made or lost?

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in the exchange rate S($/€)?

For European options,what of the effect of an increase in the strike price E?

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in r_$ relative to r_€?

Which equation is used to define the futures price?

Which of the follow options strategies are consistent in their belief about the future behavior of the underlying asset price?

For an American call option,A and B in the graph are

Find the value today of your replicating today portfolio in euro.

The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00.Consider a three-month American call option on €62,500 with a strike price of $1.50 = €1.00.If you pay an option premium of $5,000 to buy this call,at what exchange rate will you break-even?

If a currency futures contract (direct quote)is priced below the price implied by Interest Rate Parity (IRP),arbitrageurs could take advantage of the mispricing by simultaneously

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

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Exam 7: Futures and Options on Foreign Exchange

Open interest in currency futures contracts

The "open interest" shown in currency futures quotations is

The Black-Scholes option pricing formulae

Suppose that you have written a call option on €10,000 with a strike price in dollars.Suppose further that the hedge ratio is ½.Which of the following would be an appropriate hedge for a short position in this call option?

If you think that the dollar is going to appreciate against the euro,you should

Three days ago,you entered into a futures contract to sell €62,500 at $1.50 per €.Over the past three days the contract has settled at $1.50,$1.52,and $1.54.How much have you made or lost?

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in the exchange rate S($/€)?

For European options,what of the effect of an increase in the strike price E?

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in r$ relative to r€?

Which equation is used to define the futures price?

Which of the follow options strategies are consistent in their belief about the future behavior of the underlying asset price?

For an American call option,A and B in the graph are

Find the value today of your replicating today portfolio in euro.

The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00.Consider a three-month American call option on €62,500 with a strike price of $1.50 = €1.00.If you pay an option premium of $5,000 to buy this call,at what exchange rate will you break-even?

If a currency futures contract (direct quote)is priced below the price implied by Interest Rate Parity (IRP),arbitrageurs could take advantage of the mispricing by simultaneously

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in r_$ relative to r_€?