Question 1

An option contract requires an up-front premium payment.

Accepted Answer

A) True 
 B)False

Question 2

The process of matching the liability created by borrowing foreign currencies with the asset created by lending domestic currency by commercial banks is known as ________ the foreign exchange risk.

Accepted Answer

A)   Capitalizing
B)   Pegging
C)   Drifting
D)   HedgingE) All of the above
F) A) and B)

Question 3

The swap market is available to:

Accepted Answer

A)   Commercial banks.
B)   Governments.
C)   Multinational firms.
D)   Tourists.E) A) and D)
F) B) and C)

Question 4

Forward-looking market instruments are used to reduce traders' currency risk.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is the difference between foreign currency options and futures?

Accepted Answer

A)   Options leave a buyer with the choice of exercising or not exercising; whereas the futures require a mandatory delivery.
B)   Options require a mandatory delivery; whereas the futures leave a buyer with the choice of exercising or not exercising.
C)   Options require daily cash settlements from contract holders; while the futures do not require any daily cash settlements.
D)   Options do not require any daily cash settlements; while the futures require daily cash settlements from contract holders.E) A) and B)
F) A) and C)

Question 6

A strike price is the price where:

Accepted Answer

A)   A futures contract reaches maturity.
B)   The owner of an options contract can transact.
C)   The bank sets as an out-of-bounds in contract negotiations.
D)   All currencies are brought to a standardized price.E) A) and D)
F) B) and C)

Question 7

When the forward price of a currency is equal to the spot price,it is sold at a forward premium.

Accepted Answer

A) True 
 B)False

Question 8

What financial instruments allow firms to obtain long-term foreign currency financing at lower cost than they can by borrowing directly?

Accepted Answer

A)   Currency swaps
B)   Forward rates
C)   Foreign currency options
D)   Future contractsE) C) and D)
F) B) and C) A

Question 9

Which of the following features describe the futures market for foreign exchange?
I.Fixed contracts
II.Tailored size contracts
III.Fixed maturities
IV.Can be resold

Accepted Answer

A)   I only
B)   II only
C)   I and IV
D)   I, II, and IVE) B) and D)
F) A) and C)

Question 10

Foreign currency options contracts that give the buyer the right to buy are called:

Accepted Answer

A)   Call options.
B)   Purchase rights.
C)   Put options.
D)   Strike rights.E) A) and D)
F) C) and D)

Question 11

In the options market,a put option gives the right to sell and a call option gives the right to buy currency.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following features describe the forward market for foreign exchange?
I.Tailored size contracts
II.Small amount contracts
III.Tailored maturities
IV.Large amount contracts

Accepted Answer

A)   II only
B)   IV only
C)   I, II, and III
D)   I, III, and IVE) B) and D)
F) A) and B)

Question 13

The exchange market has seen the rise of new contracts combines features of forward contracts and option contracts.

Accepted Answer

A) True 
 B)False

Question 14

The following are benefits of a currency swap except:

Accepted Answer

A)   Swaps avoid dealing with any interest payments.
B)   Swaps lower transaction costs of cross-currency cash management.
C)   Swaps reduce foreign exchange risk for financing transactions.
D)   Swaps allow firms to acquire financing for which it has a comparative advantage.E) A) and D)
F) A) and C)

Question 15

Which financial instrument provides a buyer the right but not the obligation to purchase or sell a fixed amount of currency at a prearranged price,within a few days to a couple of years?

Accepted Answer

A)   Futures contract
B)   Foreign currency option
C)   Currency swap
D)   Forward contractE) B) and D)
F) A) and B)

Question 16

Use this information to answer the questions 3-4.
You purchase a futures contract for September delivery September 15th of 62,500 pounds on March 15th. The pound futures exchange rate is $1.65 per pound. The bank has a margin requirement of 2 percent.
-To secure the futures contract deal with the bank,you will have to put ______ as a deposit with the bank.

Accepted Answer

A)   $1,250
B)   $2,000
C)   $2062.5
D)   $2087.5E) B) and C)
F) B) and D)

Question 17

Currency is sold at a forward discount when the spot price of a currency is less than the forward price.

Accepted Answer

A) True 
 B)False  False

Question 18

The market where commercial banks buy and sell foreign currencies to be delivered at a future date is called the projection currency market.

Accepted Answer

A) True 
 B)False

Question 19

If the owner of the option exercises the right to buy or sell,the seller of the option must ________.

Accepted Answer

A)   Find a broker for the buyer.
B)   Set the strike price and find a new buyer.
C)   Calculate the new strike price based upon the days left on the contract.
D)   Buy or sell the financial instrument to the buyer.E) B) and C)
F) A) and D) D

Question 20

A contract that provides the right,but not the obligation,to buy or sell a given amount of currency at a fixed exchange rate on or before the maturity date is called an ______.

Accepted Answer

A)   Excise option
B)   Foreign currency option
C)   Foreign currency swap
D)   Hedge contractE) All of the above
F) A) and B)

Exam 4: Forward-Looking Market Instruments

An option contract requires an up-front premium payment.

Correct Answer
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The process of matching the liability created by borrowing foreign currencies with the asset created by lending domestic currency by commercial banks is known as ________ the foreign exchange risk.

Correct Answer
verified

The swap market is available to:

Correct Answer
verified

Forward-looking market instruments are used to reduce traders' currency risk.

Correct Answer
verified

Which of the following is the difference between foreign currency options and futures?

Correct Answer
verified

A strike price is the price where:

Correct Answer
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When the forward price of a currency is equal to the spot price,it is sold at a forward premium.

Correct Answer
verified

What financial instruments allow firms to obtain long-term foreign currency financing at lower cost than they can by borrowing directly?

Correct Answer
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A

Which of the following features describe the futures market for foreign exchange? I.Fixed contracts II.Tailored size contracts III.Fixed maturities IV.Can be resold

Correct Answer
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Foreign currency options contracts that give the buyer the right to buy are called:

Correct Answer
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In the options market,a put option gives the right to sell and a call option gives the right to buy currency.

Correct Answer
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Which of the following features describe the forward market for foreign exchange? I.Tailored size contracts II.Small amount contracts III.Tailored maturities IV.Large amount contracts

Correct Answer
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The exchange market has seen the rise of new contracts combines features of forward contracts and option contracts.

Correct Answer
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The following are benefits of a currency swap except:

Correct Answer
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Which financial instrument provides a buyer the right but not the obligation to purchase or sell a fixed amount of currency at a prearranged price,within a few days to a couple of years?

Correct Answer
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Correct Answer
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Currency is sold at a forward discount when the spot price of a currency is less than the forward price.

Correct Answer
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False

The market where commercial banks buy and sell foreign currencies to be delivered at a future date is called the projection currency market.

Correct Answer
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If the owner of the option exercises the right to buy or sell,the seller of the option must ________.

Correct Answer
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D

A contract that provides the right,but not the obligation,to buy or sell a given amount of currency at a fixed exchange rate on or before the maturity date is called an ______.

Correct Answer
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Exam 4: Forward-Looking Market Instruments

An option contract requires an up-front premium payment.

Correct AnswerverifiedShow Answer

The process of matching the liability created by borrowing foreign currencies with the asset created by lending domestic currency by commercial banks is known as ________ the foreign exchange risk.

Correct AnswerverifiedShow Answer

The swap market is available to:

Correct AnswerverifiedShow Answer

Forward-looking market instruments are used to reduce traders' currency risk.

Correct AnswerverifiedShow Answer

Which of the following is the difference between foreign currency options and futures?

Correct AnswerverifiedShow Answer

A strike price is the price where:

Correct AnswerverifiedShow Answer

When the forward price of a currency is equal to the spot price,it is sold at a forward premium.

Correct AnswerverifiedShow Answer

What financial instruments allow firms to obtain long-term foreign currency financing at lower cost than they can by borrowing directly?

Correct AnswerverifiedA

Which of the following features describe the futures market for foreign exchange? I.Fixed contracts II.Tailored size contracts III.Fixed maturities IV.Can be resold

Correct AnswerverifiedShow Answer

Foreign currency options contracts that give the buyer the right to buy are called:

Correct AnswerverifiedShow Answer

In the options market,a put option gives the right to sell and a call option gives the right to buy currency.

Correct AnswerverifiedShow Answer

Which of the following features describe the forward market for foreign exchange? I.Tailored size contracts II.Small amount contracts III.Tailored maturities IV.Large amount contracts

Correct AnswerverifiedShow Answer

The exchange market has seen the rise of new contracts combines features of forward contracts and option contracts.

Correct AnswerverifiedShow Answer

The following are benefits of a currency swap except:

Correct AnswerverifiedShow Answer

Which financial instrument provides a buyer the right but not the obligation to purchase or sell a fixed amount of currency at a prearranged price,within a few days to a couple of years?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Currency is sold at a forward discount when the spot price of a currency is less than the forward price.

Correct AnswerverifiedFalse

The market where commercial banks buy and sell foreign currencies to be delivered at a future date is called the projection currency market.

Correct AnswerverifiedShow Answer

If the owner of the option exercises the right to buy or sell,the seller of the option must ________.

Correct AnswerverifiedD

A contract that provides the right,but not the obligation,to buy or sell a given amount of currency at a fixed exchange rate on or before the maturity date is called an ______.

Correct AnswerverifiedShow Answer

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A

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False

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D

Correct Answer
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