Question 1

Which of the following is NOT a factor in determining the premium price of a currency option?

Accepted Answer

A) The present spot rate. 
B) The time to maturity. 
C) The standard deviation of the daily spot price movement. 
D) All of the above are factors in determining the premium price. 
A) The present spot rate. 
B) The time to maturity. 
C) The standard deviation of the daily spot price movement. 
D) All of the above are factors in determining the premium price.

Question 2

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 3

TABLE 8.1
Use the below mentioned table to answer following question(s).
April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts).  
-Refer to Table 8.1. The May call option on pounds with a strike price of 1440 means ________.

Accepted Answer

A) $88/£ per contract. 
B) $0.88/£. 
C) $0.0088/£. 
D) none of the above 
A) $88/£ per contract. 
B) $0.88/£. 
C) $0.0088/£. 
D) none of the above

Question 4

The authors quote an essay on risk from Peter Bernstein in which he states each of the following EXCEPT:

Accepted Answer

A) It is hubris to believe that we can put reliable and stable numbers on the return of the stock market over the next 2, 20, or 50 years. 
B) It is rational to use probability instead of timing to demonstrate that an event with low probability is therefore unlikely to ever occur. 
C) The science of risk management is capable of creating new risks even as it brings old risks under control. 
D) All of the above are part of Peter Bernstein's essay. 
A) It is hubris to believe that we can put reliable and stable numbers on the return of the stock market over the next 2, 20, or 50 years. 
B) It is rational to use probability instead of timing to demonstrate that an event with low probability is therefore unlikely to ever occur. 
C) The science of risk management is capable of creating new risks even as it brings old risks under control. 
D) All of the above are part of Peter Bernstein's essay.

Question 5

A put option on yen is written with a strike price of ¥105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

Accepted Answer

A) ¥100/$ 
B) ¥105/$ 
C) ¥110/$ 
D) ¥115/$ 
A) ¥100/$ 
B) ¥105/$ 
C) ¥110/$ 
D) ¥115/$

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 $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$ 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 7

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 8

Major corporate financial disasters related to financial derivatives continue to be a problem in global business.

Accepted Answer

A) True 
 B)False

Question 9

TABLE 8.1
Use the below mentioned table to answer following question(s).
April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts).  
-Refer to Table 8.1. What was the closing price of the British pound on April 18, 2009?

Accepted Answer

A) $1.448/£ 
B) £1.448/$ 
C) $14.48/£ 
D) None of the above 
A) $1.448/£ 
B) £1.448/$ 
C) $14.48/£ 
D) None of the above

Question 10

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 11

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 12

The ________ of an option is the value if the option were to be exercised immediately. It is the options ________ value.

Accepted Answer

A) intrinsic value; maximum 
B) intrinsic value; minimum 
C) time value; maximum 
D) time value; minimum 
A) intrinsic value; maximum 
B) intrinsic value; minimum 
C) time value; maximum 
D) time value; minimum

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

Accepted Answer

A) future 
B) forward 
C) option 
D) swap 
A) future 
B) forward 
C) option 
D) swap

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/$. Andrea thinks the yen will move to ¥128.00/$ 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 16

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 17

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 18

A speculator in the futures market wishing to lock in a price at which they could ________ a foreign currency will ________ a futures contract.

Accepted Answer

A) buy; sell 
B) sell; buy 
C) buy; buy 
D) none of the above 
A) buy; sell 
B) sell; buy 
C) buy; buy 
D) none of the above

Question 19

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 20

Your U.S firm has an accounts payable denominated in UK pounds due in 6 months. To protect yourself against unexpected changes in the dollar/pound exchange rate you should

Accepted Answer

A) buy a pound put option. 
B) sell a pound put option. 
C) buy a pound call option. 
D) sell a pound call option. 
A) buy a pound put option. 
B) sell a pound put option. 
C) buy a pound call option. 
D) sell a pound call option.

Which of the following is NOT a factor in determining the premium price of a currency option?

TABLE 8.1 Use the below mentioned table to answer following question(s). April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts). -Refer to Table 8.1. The May call option on pounds with a strike price of 1440 means ________.

The authors quote an essay on risk from Peter Bernstein in which he states each of the following EXCEPT:

A put option on yen is written with a strike price of ¥105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

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

Major corporate financial disasters related to financial derivatives continue to be a problem in global business.

TABLE 8.1 Use the below mentioned table to answer following question(s). April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts). -Refer to Table 8.1. What was the closing price of the British pound on April 18, 2009?

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

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

The of an option is the value if the option were to be exercised immediately. It is the options value.

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

A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

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 speculator in the futures market wishing to lock in a price at which they could a foreign currency will a futures contract.

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?

Your U.S firm has an accounts payable denominated in UK pounds due in 6 months. To protect yourself against unexpected changes in the dollar/pound exchange rate you should

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007-2009

The Foreign Exchange Market

International Parity Conditions

Interest Rate and Currency Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Operating Exposure

Translation Exposure

The Global Cost and Availability of Capital

Sourcing Equity Globally

Sourcing Debt Globally

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Political Risk

Multinational Capital Budgeting

Multinational Tax Management

Working Capital Management

International Trade Finance

Filters

Exam 8: Foreign Currency Derivatives

Which of the following is NOT a factor in determining the premium price of a currency option?

TABLE 8.1 Use the below mentioned table to answer following question(s). April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts). -Refer to Table 8.1. The May call option on pounds with a strike price of 1440 means ________.

The authors quote an essay on risk from Peter Bernstein in which he states each of the following EXCEPT:

A put option on yen is written with a strike price of ¥105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

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

Major corporate financial disasters related to financial derivatives continue to be a problem in global business.

TABLE 8.1 Use the below mentioned table to answer following question(s). April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts). -Refer to Table 8.1. What was the closing price of the British pound on April 18, 2009?

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

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

The ________ of an option is the value if the option were to be exercised immediately. It is the options ________ value.

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

A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

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 speculator in the futures market wishing to lock in a price at which they could ________ a foreign currency will ________ a futures contract.

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?

Your U.S firm has an accounts payable denominated in UK pounds due in 6 months. To protect yourself against unexpected changes in the dollar/pound exchange rate you should

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007-2009

The Foreign Exchange Market

International Parity Conditions

Interest Rate and Currency Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Operating Exposure

Translation Exposure

The Global Cost and Availability of Capital

Sourcing Equity Globally

Sourcing Debt Globally

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Political Risk

Multinational Capital Budgeting

Multinational Tax Management

Working Capital Management

International Trade Finance

Filters

The of an option is the value if the option were to be exercised immediately. It is the options value.

A speculator in the futures market wishing to lock in a price at which they could a foreign currency will a futures contract.