Question 1

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

Accepted Answer

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

Question 2

Which equation is used to define the futures price?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

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 4

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 5

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 6

Which of the lines is a graph of the profit at maturity of writing a call option on €62,500 with a strike price of $1.20 = €1.00 and an option premium of $3,125?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 7

Yesterday, you entered into a futures contract to buy €62,500 at $1.50/€. Your initial margin was $3,750 (= 0.04 × €62,500 × $1.50/€ = 4 percent of the contract value in dollars). Your maintenance margin is $2,000 (meaning that your broker leaves you alone until your account balance falls to $2,000). At what settle price (use 4 decimal places) do you get a margin call?

Accepted Answer

A) $1.4720/€ 
B) $1.5280/€ 
C) $1.500/€ 
D) None of the above 
A) $1.4720/€ 
B) $1.5280/€ 
C) $1.500/€ 
D) None of the above

Question 8

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 9

What paradigm is used to define the futures price?

Accepted Answer

A) IRP 
B) Hedge Ratio 
C) Black Scholes 
D) Risk Neutral Valuation 
A) IRP 
B) Hedge Ratio 
C) Black Scholes 
D) Risk Neutral Valuation

Question 10

If the call finishes in-the-money what is your portfolio cash flow?

Accepted Answer

The answer of If the call finishes in-the-money what is...

Question 11

The volume of OTC currency options trading is

Accepted Answer

A) much smaller than that of organized-exchange currency option trading. 
B) much larger than that of organized-exchange currency option trading. 
C) larger, because the exchanges are only repackaging OTC options for their customers. 
D) none of the above 
A) much smaller than that of organized-exchange currency option trading. 
B) much larger than that of organized-exchange currency option trading. 
C) larger, because the exchanges are only repackaging OTC options for their customers. 
D) none of the above

Question 12

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 13

Draw the tree for a call option on $20,000 with a strike price of £10,000. The current exchange rate is £1.00 = $2.00 and in one period the dollar value of the pound will either double or be cut in half. The current interest rates are i$ = 3% and are i£ = 2%.

Accepted Answer

A)    
B)    
C) None of the above 
A)    
B)    
C) None of the above

Question 14

Exercise of a currency futures option results in

Accepted Answer

A) a long futures position for the call buyer or put writer. 
B) a short futures position for the call buyer or put writer. 
C) a long futures position for the put buyer or call writer. 
D) a short futures position for the call buyer or put buyer. 
A) a long futures position for the call buyer or put writer. 
B) a short futures position for the call buyer or put writer. 
C) a long futures position for the put buyer or call writer. 
D) a short futures position for the call buyer or put buyer.

Question 15

Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted?

Accepted Answer

A) $1.5160 per €. 
B) $1.208 per €. 
C) $1.1920 per €. 
D) $1.4840 per €. 
A) $1.5160 per €. 
B) $1.208 per €. 
C) $1.1920 per €. 
D) $1.4840 per €.

Question 16

Find the value of a one-year put option on $15,000 with a strike price of €10,000. In one year the exchange rate (currently S0($/€) = $1.50/€) can increase by 60% or decrease by 37.5% . The current one-year interest rate in the U.S. is i$ = 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 17

With currency futures options the underlying asset is

Accepted Answer

A) foreign currency. 
B) a call or put option written on foreign currency. 
C) a futures contract on the foreign currency. 
D) none of the above 
A) foreign currency. 
B) a call or put option written on foreign currency. 
C) a futures contract on the foreign currency. 
D) none of the above

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

Calculate the hedge ratio.

Accepted Answer

The answer of Calculate the hedge ratio....

Question 20

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

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

Which equation is used to define the futures price?

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

Which of the lines is a graph of the profit at maturity of writing a call option on €62,500 with a strike price of $1.20 = €1.00 and an option premium of $3,125?

What paradigm is used to define the futures price?

If the call finishes in-the-money what is your portfolio cash flow?

The volume of OTC currency options trading is

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

Draw the tree for a call option on $20,000 with a strike price of £10,000. The current exchange rate is £1.00 = $2.00 and in one period the dollar value of the pound will either double or be cut in half. The current interest rates are i_$ = 3% and are i_£ = 2%.

Exercise of a currency futures option results in

Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted?

With currency futures options the underlying asset is

Calculate the hedge ratio.

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

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

Exam 7: Futures and Options on Foreign Exchange

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

Which equation is used to define the futures price?

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

Which of the lines is a graph of the profit at maturity of writing a call option on €62,500 with a strike price of $1.20 = €1.00 and an option premium of $3,125?

What paradigm is used to define the futures price?

If the call finishes in-the-money what is your portfolio cash flow?

The volume of OTC currency options trading is

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

Draw the tree for a call option on $20,000 with a strike price of £10,000. The current exchange rate is £1.00 = $2.00 and in one period the dollar value of the pound will either double or be cut in half. The current interest rates are i$ = 3% and are i£ = 2%.

Exercise of a currency futures option results in

Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted?

With currency futures options the underlying asset is

Calculate the hedge ratio.

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

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

Draw the tree for a call option on $20,000 with a strike price of £10,000. The current exchange rate is £1.00 = $2.00 and in one period the dollar value of the pound will either double or be cut in half. The current interest rates are i_$ = 3% and are i_£ = 2%.