International Financial Management Study Set 9

Business

Quiz 5 :Currency Derivatives

Question Type
Forward contracts:
Free
Multiple Choice
Answer:

Answer:

B

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The writer of a call option is obligated to sell the underlying currency to the buyer of the option if the option is exercised.
Free
True False
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Answer:

True

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A call option on Australian dollars has a strike (exercise) price of £0.40. The present exchange rate is £0.43. This call option can be referred to as:
Free
Multiple Choice
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Answer:

A

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The one-year forward rate of the British pound is quoted at $1.20, and the spot rate of the British pound is quoted at$1.23. The forward ____ is ____ percent.
Multiple Choice
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If you purchase a straddle on euros, this implies that you:
Multiple Choice
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There are no transactions costs associated with trading futures or options.
True False
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Which of the following is not an instrument used by MNCs to cover their foreign currency positions?
Multiple Choice
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Due to put-call parity, we can use the same formula to price calls and puts.
True False
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You purchase a call option on dollars for a premium of £0.02 per unit, with an exercise price of £0.57; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is £0.58, your net profit per unit is:
Multiple Choice
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If you have bought the right to sell, you are a:
Multiple Choice
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You are a speculator who sells a call option on Swiss francs for a premium of £0.04, with an exercise price of £0.42. The option will not be exercised until the expiration date, if at all. If the spot rate of the Swiss franc is £0.47 on the expiration date, your net profit per unit, assuming that you have to buy Swiss francs in the market to fulfil your obligation, is:
Multiple Choice
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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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Carl is a US option writer. In anticipation of a depreciation of the British pound from its current level of $1.50 to$1.45, he has written a call option with an exercise price of $1.51 and a premium of$.02. If the spot rate at the option's maturity turns out to be \$1.54, what is Carl's profit or loss per unit (assuming the buyer of the option acts rationally)?
Multiple Choice
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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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If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.
Multiple Choice
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A Collar is more flexible than futures and forwards allowing limited gains if there is a favourable price movement and it is cheaper than an option as potential gains are limited.
True False
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The price of a futures contract will generally vary significantly from that of a forward contract.
True False
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Forward contracts are usually liquidated by actual delivery of the currency, while futures contracts are usually liquidated by offsetting transactions.
True False
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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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When you own ____, there is no obligation on your part; however, when you own ____, there is an obligation on your part.
Multiple Choice
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