Question 1

When you own ____, there is no obligation on your part; however, when you own ____, there is an obligation on your part.

Accepted Answer

A)  call options; put options 
B)  futures contracts; call options 
C)  forward contracts; futures contracts 
D)  o; forward contracts 
A)  call options; put options 
B)  futures contracts; call options 
C)  forward contracts; futures contracts 
D)  o; forward contracts

Question 2

Due to put-call parity, we can use the same formula to price calls and puts.

Accepted Answer

A) True 
 B)False

Question 3

Assume that the British pound (£) futures price for September is $1.60. Given that 62,500 units are in a British pound futures contract, the seller of British pound futures will receive $____ on the delivery date.

Accepted Answer

A)  39,062.50 
B)  100,000 
C)  48,000 
D)  87,062.50 
A)  39,062.50 
B)  100,000 
C)  48,000 
D)  87,062.50

Question 4

Which of the following is true?

Accepted Answer

A)  Most forward contracts between firms and banks are for speculative purposes. 
B)  Most future contracts represent a conservative approach by firms to hedge foreign trade. 
C)  The forward contracts offered by banks have maturities for only four possible dates in the future. 
D)  none of the above 
A)  Most forward contracts between firms and banks are for speculative purposes. 
B)  Most future contracts represent a conservative approach by firms to hedge foreign trade. 
C)  The forward contracts offered by banks have maturities for only four possible dates in the future. 
D)  none of the above

Question 5

A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate is $.59. This call option can be referred to as:

Accepted Answer

A)  in the money. 
B)  out of the money. 
C)  at the money. 
D)  at a discount. 
A)  in the money. 
B)  out of the money. 
C)  at the money. 
D)  at a discount.

Question 6

Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high spot price relative to the strike price will result in a relatively high premium for a call option but a relatively low premium for a put option.

Accepted Answer

A) True 
 B)False

Question 7

The greater the variability of a currency, the ____ will be the premium of a call option on this currency, and the ____ will be the premium of a put option on this currency, other things equal.

Accepted Answer

A)  greater; lower 
B)  greater; greater 
C)  lower; greater 
D)  lower; lower 
A)  greater; lower 
B)  greater; greater 
C)  lower; greater 
D)  lower; lower

Question 8

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?

Accepted Answer

A)  7.46% premium 
B)  7.46% discount 
C)  7.75% premium 
D)  7.75% discount 
A)  7.46% premium 
B)  7.46% discount 
C)  7.75% premium 
D)  7.75% discount

Question 9

An option writer is the seller of a call or a put option.

Accepted Answer

A) True 
 B)False

Question 10

Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports.

Accepted Answer

A)  sell yen put options 
B)  buy yen call options 
C)  buy futures contracts on yen 
D)  sell futures contracts on yen 
A)  sell yen put options 
B)  buy yen call options 
C)  buy futures contracts on yen 
D)  sell futures contracts on yen

Question 11

A put option on Swiss franc has a strike (exercise) price of $.92. The present exchange rate is $.89. This put option can be referred to as:

Accepted Answer

A)  in the money. 
B)  out of the money. 
C)  at the money. 
D)  at a discount. 
A)  in the money. 
B)  out of the money. 
C)  at the money. 
D)  at a discount.

Question 12

There are no transactions costs associated with trading futures or options.

Accepted Answer

A) True 
 B)False

Question 13

The price of a futures contract will generally vary significantly from that of a forward contract.

Accepted Answer

A) True 
 B)False

Question 14

Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is:

Accepted Answer

A)  $1,562.50. 
B)  -$1,562.50. 
C)  -$1,250.00. 
D)  -$625.00. 
A)  $1,562.50. 
B)  -$1,562.50. 
C)  -$1,250.00. 
D)  -$625.00.

Question 15

The purchase of a currency put option would be appropriate for which of the following?

Accepted Answer

A)  Investors who expect to buy a foreign bond in one month. 
B)  Corporations who expect to buy foreign currency to finance foreign subsidiaries. 
C)  Corporations who expect to collect on a foreign account receivable in one month. 
D)  all of the above 
A)  Investors who expect to buy a foreign bond in one month. 
B)  Corporations who expect to buy foreign currency to finance foreign subsidiaries. 
C)  Corporations who expect to collect on a foreign account receivable in one month. 
D)  all of the above

Question 16

An MNC frequently uses either forward or futures contracts to hedge its exposure to foreign receivables. To do so, the MNC can either sell the foreign currency forward or sell futures.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions?

Accepted Answer

A)  forward contracts. 
B)  futures contracts. 
C)  non-deliverable forward contracts. 
D)  options. 
E)  all of the above are instruments used to cover foreign currency positions. 
A)  forward contracts. 
B)  futures contracts. 
C)  non-deliverable forward contracts. 
D)  options. 
E)  all of the above are instruments used to cover foreign currency positions.

Question 18

Which of the following is true regarding the options markets?

Accepted Answer

A)  Hedgers and speculators both attempt to lower risk. 
B)  Hedgers attempt to lower risk, while speculators attempt to make riskless profits. 
C)  Hedgers and speculators are both necessary in order for the market to be liquid. 
D)  all of the above 
A)  Hedgers and speculators both attempt to lower risk. 
B)  Hedgers attempt to lower risk, while speculators attempt to make riskless profits. 
C)  Hedgers and speculators are both necessary in order for the market to be liquid. 
D)  all of the above

Question 19

If you purchase a straddle on euros, this implies that you:

Accepted Answer

A)  finance the purchase of a call option by selling a put option in the euros. 
B)  finance the purchase of a call option by selling a call option in the euros. 
C)  finance the purchase of a put option by selling a put option in the euros. 
D)  finance the purchase of a put option by selling a call option in the euros. 
E)  none of the above 
A)  finance the purchase of a call option by selling a put option in the euros. 
B)  finance the purchase of a call option by selling a call option in the euros. 
C)  finance the purchase of a put option by selling a put option in the euros. 
D)  finance the purchase of a put option by selling a call option in the euros. 
E)  none of the above

Question 20

Currency options sold through an options exchange:

Accepted Answer

A)  contain a commitment to the owner, and are standardized. 
B)  contain a commitment to the owner, and can be tailored to the desire of the owner. 
C)  contain a right but not a commitment to the owner, and can be tailored to the desire of the owner. 
D)  contain a right but not a commitment to the owner, and are standardized. 
A)  contain a commitment to the owner, and are standardized. 
B)  contain a commitment to the owner, and can be tailored to the desire of the owner. 
C)  contain a right but not a commitment to the owner, and can be tailored to the desire of the owner. 
D)  contain a right but not a commitment to the owner, and are standardized.

When you own , there is no obligation on your part; however, when you own , there is an obligation on your part.

Due to put-call parity, we can use the same formula to price calls and puts.

Assume that the British pound (£) futures price for September is $1.60. Given that 62,500 units are in a British pound futures contract, the seller of British pound futures will receive $____ on the delivery date.

Which of the following is true?

A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate is $.59. This call option can be referred to as:

Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high spot price relative to the strike price will result in a relatively high premium for a call option but a relatively low premium for a put option.

The greater the variability of a currency, the will be the premium of a call option on this currency, and the will be the premium of a put option on this currency, other things equal.

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?

An option writer is the seller of a call or a put option.

Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports.

A put option on Swiss franc has a strike (exercise) price of $.92. The present exchange rate is $.89. This put option can be referred to as:

There are no transactions costs associated with trading futures or options.

The price of a futures contract will generally vary significantly from that of a forward contract.

The purchase of a currency put option would be appropriate for which of the following?

An MNC frequently uses either forward or futures contracts to hedge its exposure to foreign receivables. To do so, the MNC can either sell the foreign currency forward or sell futures.

Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions?

Which of the following is true regarding the options markets?

If you purchase a straddle on euros, this implies that you:

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

When you own ____, there is no obligation on your part; however, when you own ____, there is an obligation on your part.

Due to put-call parity, we can use the same formula to price calls and puts.

Assume that the British pound (£) futures price for September is $1.60. Given that 62,500 units are in a British pound futures contract, the seller of British pound futures will receive $____ on the delivery date.

Which of the following is true?

A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate is $.59. This call option can be referred to as:

Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high spot price relative to the strike price will result in a relatively high premium for a call option but a relatively low premium for a put option.

The greater the variability of a currency, the ____ will be the premium of a call option on this currency, and the ____ will be the premium of a put option on this currency, other things equal.

The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is the annualized forward premium or discount of the euro?

An option writer is the seller of a call or a put option.

Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports.

A put option on Swiss franc has a strike (exercise) price of $.92. The present exchange rate is $.89. This put option can be referred to as:

There are no transactions costs associated with trading futures or options.

The price of a futures contract will generally vary significantly from that of a forward contract.

The purchase of a currency put option would be appropriate for which of the following?

An MNC frequently uses either forward or futures contracts to hedge its exposure to foreign receivables. To do so, the MNC can either sell the foreign currency forward or sell futures.

Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions?

Which of the following is true regarding the options markets?

If you purchase a straddle on euros, this implies that you:

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

When you own , there is no obligation on your part; however, when you own , there is an obligation on your part.

The greater the variability of a currency, the will be the premium of a call option on this currency, and the will be the premium of a put option on this currency, other things equal.