Exam 5: Currency Derivatives

The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate.

(True/False)

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Question 21

Which of the following is not true regarding options?

(Multiple Choice)

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Question 22

If your firm expects the euro to substantially depreciate, it could speculate by euro call options or euros forward in the forward exchange market.

(Multiple Choice)

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Question 23

You purchase a put option on Swiss francs for a premium of $.02, with an exercise price of $.61. The option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $.58, your net profit per unit is:

(Multiple Choice)

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Question 24

Which of the following is true?

(Multiple Choice)

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Question 25

The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward is percent.

(Multiple Choice)

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Question 26

When the current exchange rate is less than the strike price, a call option with that strike price will be in the money and a put option with that strike price will be out of the money.

(True/False)

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Question 27

A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?

(Multiple Choice)

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Question 28

Since futures contracts are traded on an exchange, the exchange will always take the "other side" of the transaction in terms of accepting the credit risk.

(True/False)

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Question 29

The currency futures markets are regulated by the International Monetary Fund.

(True/False)

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Question 30

Research has found that the options market is:

(Multiple Choice)

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Question 31

The shorter the time to the expiration date for a currency, the will be the premium of a call option, and the will be the premium of a put option, other things equal.

(Multiple Choice)

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Question 32

If you expect the British pound to appreciate, you could speculate by pound call options or pound put options.

(Multiple Choice)

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Question 33

The premium on a pound put option is $.03 per unit. The exercise price is $1.60. The break-even point is for the buyer of the put, and for the seller of the put. (Assume zero transactions costs and that the buyer and seller of the put option are speculators.)

(Multiple Choice)

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Question 34

Since corporations have specialized needs, they usually prefer futures contracts to forward contracts for hedging purposes.

(True/False)

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Question 35

Andrea is an option speculator. She anticipates the Canadian dollar to depreciate from its current level of $0.90 to $0.85. Currently, Canadian dollar call options are available with an exercise price of $0.91 and a premium of $0.02. Also, Canadian dollar put options are available with an exercise price of $0.88 and a premium of $0.02. If the future spot rate of the Canadian dollar is $0.85, what is Andrea's profit or loss per unit?

(Multiple Choice)

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Question 36

Both call and put option premiums are affected by the level of the existing spot rate relative to the strike price, the length of time before the expiration date, and the potential variability of the currency.

(True/False)

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Question 37

If an MNC desires to offset a forward contract that it previously created, it can simply ignore its obligation.

(True/False)

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Question 38

A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time of maturity is $.85, what is the net amount received by the corporation if it acts rationally?

(Multiple Choice)

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Question 39

Currency options sold through an options exchange:

(Multiple Choice)

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Question 40

Showing 21 - 40 of 163

The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate.

Which of the following is not true regarding options?

If your firm expects the euro to substantially depreciate, it could speculate by euro call options or euros forward in the forward exchange market.

You purchase a put option on Swiss francs for a premium of $.02, with an exercise price of $.61. The option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $.58, your net profit per unit is:

Which of the following is true?

The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward is percent.

When the current exchange rate is less than the strike price, a call option with that strike price will be in the money and a put option with that strike price will be out of the money.

A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?

Since futures contracts are traded on an exchange, the exchange will always take the "other side" of the transaction in terms of accepting the credit risk.

The currency futures markets are regulated by the International Monetary Fund.

Research has found that the options market is:

The shorter the time to the expiration date for a currency, the will be the premium of a call option, and the will be the premium of a put option, other things equal.

If you expect the British pound to appreciate, you could speculate by pound call options or pound put options.

The premium on a pound put option is $.03 per unit. The exercise price is $1.60. The break-even point is for the buyer of the put, and for the seller of the put. (Assume zero transactions costs and that the buyer and seller of the put option are speculators.)

Since corporations have specialized needs, they usually prefer futures contracts to forward contracts for hedging purposes.

Both call and put option premiums are affected by the level of the existing spot rate relative to the strike price, the length of time before the expiration date, and the potential variability of the currency.

If an MNC desires to offset a forward contract that it previously created, it can simply ignore its obligation.

A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time of maturity is $.85, what is the net amount received by the corporation if it acts rationally?

Currency options sold through an options exchange:

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 5: Currency Derivatives

The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate.

Which of the following is not true regarding options?

If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market.

You purchase a put option on Swiss francs for a premium of $.02, with an exercise price of $.61. The option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $.58, your net profit per unit is:

Which of the following is true?

The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward ____ is ____ percent.

When the current exchange rate is less than the strike price, a call option with that strike price will be in the money and a put option with that strike price will be out of the money.

A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?

Since futures contracts are traded on an exchange, the exchange will always take the "other side" of the transaction in terms of accepting the credit risk.

The currency futures markets are regulated by the International Monetary Fund.

Research has found that the options market is:

The shorter the time to the expiration date for a currency, the ____ will be the premium of a call option, and the ____ will be the premium of a put option, other things equal.

If you expect the British pound to appreciate, you could speculate by ____ pound call options or ____ pound put options.

The premium on a pound put option is $.03 per unit. The exercise price is $1.60. The break-even point is ____ for the buyer of the put, and ____ for the seller of the put. (Assume zero transactions costs and that the buyer and seller of the put option are speculators.)

Since corporations have specialized needs, they usually prefer futures contracts to forward contracts for hedging purposes.

Both call and put option premiums are affected by the level of the existing spot rate relative to the strike price, the length of time before the expiration date, and the potential variability of the currency.

If an MNC desires to offset a forward contract that it previously created, it can simply ignore its obligation.

A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time of maturity is $.85, what is the net amount received by the corporation if it acts rationally?

Currency options sold through an options exchange:

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

If your firm expects the euro to substantially depreciate, it could speculate by euro call options or euros forward in the forward exchange market.

The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward is percent.

The shorter the time to the expiration date for a currency, the will be the premium of a call option, and the will be the premium of a put option, other things equal.

If you expect the British pound to appreciate, you could speculate by pound call options or pound put options.

The premium on a pound put option is $.03 per unit. The exercise price is $1.60. The break-even point is for the buyer of the put, and for the seller of the put. (Assume zero transactions costs and that the buyer and seller of the put option are speculators.)