FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Currency Derivatives

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 81

Multiple Choice

Review LaterAdd Note

Review Later

A call option on Japanese yen has a strike (exercise) price of $.012. The present exchange rate is $.011. This call option can be referred to as:

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

E) C) and D)
F) A) and B)

Correct Answer

verified

Show Answer

Question 82

Multiple Choice

Review LaterAdd Note

Review Later

The ____ the existing spot price relative to the strike price, the ____ valuable the call options will be.

A) higher; less
B) higher; more
C) lower; less
D) lower; more

E) A) and C)
F) None of the above

Correct Answer

verified

Show Answer

Question 83

Multiple Choice

Review LaterAdd Note

Which of the following is the most likely strategy for a U.S. firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs) ?

If you have a position where you might be obligated to buy Euros, you are:

If an investor who has previously purchased a futures contract wishes to liquidate her position, she would sell an identical futures contract with the same settlement date.

If you have bought the right to sell, you are a:

If the observed put option premium is less than what is suggested by the put-call parity equation, astute arbitrageurs could make a profit by ____ the put option, ____ the call option, and ____ the underlying currency.

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

If an actual put option premium is less than what is suggested by the put-call parity relationship, arbitrage can be conducted.

The one-year forward rate of the Japanese yen is quoted at $.013, and the spot rate of Japanese yen is quoted at $.011. The forward ____ is ____ percent.

An advantage of a short straddle is that it provides the option writer with income from two separate sources.

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

It is possible to have an opportunity loss when using futures to hedge.

If the futures rate is lower than the forward rate, astute investors would attempt to simultaneously buy futures and sell forward. Such actions would place downward pressure on the futures price and upward pressure on the forward rate.

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

A put option on British pounds has a strike (exercise) price of $1.48. The present exchange rate is $1.55. This put option can be referred to as:

A European option can only be exercised at the expiration date, while an American option can be exercised any time prior to the expiration date.

Which of the following would result in a profit of a futures contract when the underlying currency depreciates?

If an investor who previously sold futures contracts wishes to liquidate his position, he could sell futures contracts with the same maturity date.

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.