Question 1

As an option moves further in-the-money, delta moves toward ________.

Accepted Answer

A)  0 
B)  -1 
C)  1 
D)  large numbers 
A)  0 
B)  -1 
C)  1 
D)  large numbers C

Question 2

Currency futures contracts have become standard fare and trade readily in the world money centers.

Accepted Answer

A) True 
 B)False  True

Question 3

Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a:

Accepted Answer

A)  collateralized deposit. 
B)  marked market sum. 
C)  margin. 
D)  settlement. 
A)  collateralized deposit. 
B)  marked market sum. 
C)  margin. 
D)  settlement. C

Question 4

Assume that a call option has an exercise price of $1.50/£. At a spot price of $1.45/£, the call option has:

Accepted Answer

A)  a time value of $0.04. 
B)  a time value of $0.00. 
C)  an intrinsic value of $0.00. 
D)  an intrinsic value of -$0.04. 
A)  a time value of $0.04. 
B)  a time value of $0.00. 
C)  an intrinsic value of $0.00. 
D)  an intrinsic value of -$0.04.

Question 5

For a $1.50/£ call option with an initial premium of $0.033/£ and a lambda of 0.4, after an increase in annual volatility of 1 percent point - for example from 10% to 11% - the new option premium would be:

Accepted Answer

A)  $0.036/£. 
B)  $0.037/£. 
C)  $0.004/£. 
D)  $1.54/£. 
A)  $0.036/£. 
B)  $0.037/£. 
C)  $0.004/£. 
D)  $1.54/£.

Question 6

Option volatility is defined as the square root of the standard deviation of daily percentage changes in the underlying exchange rate.

Accepted Answer

A) True 
 B)False

Question 7

A/An ________ option can be exercised only on its expiration date, whereas a/an ________ option can be exercised anytime between the date of writing up to and including the exercise date.

Accepted Answer

A)  American; European 
B)  American; British 
C)  Asian; American 
D)  European; American 
A)  American; European 
B)  American; British 
C)  Asian; American 
D)  European; American

Question 8

Foreign currency options are available both over-the-counter and on organized exchanges.

Accepted Answer

A) True 
 B)False

Question 9

List and explain three "Greek" elements and their impact on a call option premium.

Accepted Answer

1) Delta: is the expected change in the

Question 10

As long as the option has time remaining before expiration, the option will possess time the time value element.

Accepted Answer

A) True 
 B)False

Question 11

The expected change in the option premium from a small change in the foreign interest rate (foreign currency) is termed vega.

Accepted Answer

A) True 
 B)False

Question 12

Most option profits and losses are realized through taking actual delivery of the currency rather than offsetting contracts.

Accepted Answer

A) True 
 B)False

Question 13

The sensitivity of the option premium to a small change in the spot exchange rate is called the gamma.

Accepted Answer

A) True 
 B)False

Question 14

The ________ of an option is the value if the option were to be exercised immediately. It is the option's ________ value.

Accepted Answer

A)  intrinsic value; maximum 
B)  intrinsic value; minimum 
C)  time value; maximum 
D)  time value; minimum 
A)  intrinsic value; maximum 
B)  intrinsic value; minimum 
C)  time value; maximum 
D)  time value; minimum

Question 15

The price at which an option can be exercised is called the:

Accepted Answer

A)  premium. 
B)  spot rate. 
C)  strike price. 
D)  commission. 
A)  premium. 
B)  spot rate. 
C)  strike price. 
D)  commission.

Question 16

Which of the following is NOT a difference between a currency futures contract and a forward contract?

Accepted Answer

A)  The futures contract is marked to market daily, whereas the forward contract is only due to be settled at maturity. 
B)  The counterparty to the futures participant is unknown with the clearinghouse stepping into each transaction, whereas the forward contract participants are in direct contact setting the forward specifications. 
C)  A single sales commission covers both the purchase and sale of a futures contract, whereas there is no specific sales commission with a forward contract because banks earn a profit through the bid-ask spread. 
D)  All of the above are true. 
A)  The futures contract is marked to market daily, whereas the forward contract is only due to be settled at maturity. 
B)  The counterparty to the futures participant is unknown with the clearinghouse stepping into each transaction, whereas the forward contract participants are in direct contact setting the forward specifications. 
C)  A single sales commission covers both the purchase and sale of a futures contract, whereas there is no specific sales commission with a forward contract because banks earn a profit through the bid-ask spread. 
D)  All of the above are true.

Question 17

If the exchange rate's volatility is rising, and therefore the risk of the option not being exercised is decreasing, the option premium would be increasing.

Accepted Answer

A) True 
 B)False

Question 18

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?

Accepted Answer

Foreign currency futures are standardize

Question 19

A call option whose exercise price exceeds the spot price is said to be:

Accepted Answer

A)  in-the-money. 
B)  at-the-money. 
C)  out-of-the-money. 
D)  over-the-spot. 
A)  in-the-money. 
B)  at-the-money. 
C)  out-of-the-money. 
D)  over-the-spot.

Question 20

Financial derivatives are powerful tools that can be used by management for purposes of:

Accepted Answer

A)  speculation. 
B)  hedging. 
C)  human resource management. 
D)  A and B above 
A)  speculation. 
B)  hedging. 
C)  human resource management. 
D)  A and B above

As an option moves further in-the-money, delta moves toward ________.

Currency futures contracts have become standard fare and trade readily in the world money centers.

Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a:

Assume that a call option has an exercise price of $1.50/£. At a spot price of $1.45/£, the call option has:

For a $1.50/£ call option with an initial premium of $0.033/£ and a lambda of 0.4, after an increase in annual volatility of 1 percent point - for example from 10% to 11% - the new option premium would be:

Option volatility is defined as the square root of the standard deviation of daily percentage changes in the underlying exchange rate.

A/An option can be exercised only on its expiration date, whereas a/an option can be exercised anytime between the date of writing up to and including the exercise date.

Foreign currency options are available both over-the-counter and on organized exchanges.

List and explain three "Greek" elements and their impact on a call option premium.

As long as the option has time remaining before expiration, the option will possess time the time value element.

The expected change in the option premium from a small change in the foreign interest rate (foreign currency) is termed vega.

Most option profits and losses are realized through taking actual delivery of the currency rather than offsetting contracts.

The sensitivity of the option premium to a small change in the spot exchange rate is called the gamma.

The of an option is the value if the option were to be exercised immediately. It is the option's value.

The price at which an option can be exercised is called the:

Which of the following is NOT a difference between a currency futures contract and a forward contract?

If the exchange rate's volatility is rising, and therefore the risk of the option not being exercised is decreasing, the option premium would be increasing.

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?

A call option whose exercise price exceeds the spot price is said to be:

Financial derivatives are powerful tools that can be used by management for purposes of:

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Global Cost and Availability of Capital

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 7: Foreign Currency Derivatives: Futures and Options

As an option moves further in-the-money, delta moves toward ________.

Currency futures contracts have become standard fare and trade readily in the world money centers.

Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a:

Assume that a call option has an exercise price of $1.50/£. At a spot price of $1.45/£, the call option has:

For a $1.50/£ call option with an initial premium of $0.033/£ and a lambda of 0.4, after an increase in annual volatility of 1 percent point - for example from 10% to 11% - the new option premium would be:

Option volatility is defined as the square root of the standard deviation of daily percentage changes in the underlying exchange rate.

A/An ________ option can be exercised only on its expiration date, whereas a/an ________ option can be exercised anytime between the date of writing up to and including the exercise date.

Foreign currency options are available both over-the-counter and on organized exchanges.

List and explain three "Greek" elements and their impact on a call option premium.

As long as the option has time remaining before expiration, the option will possess time the time value element.

The expected change in the option premium from a small change in the foreign interest rate (foreign currency) is termed vega.

Most option profits and losses are realized through taking actual delivery of the currency rather than offsetting contracts.

The sensitivity of the option premium to a small change in the spot exchange rate is called the gamma.

The ________ of an option is the value if the option were to be exercised immediately. It is the option's ________ value.

The price at which an option can be exercised is called the:

Which of the following is NOT a difference between a currency futures contract and a forward contract?

If the exchange rate's volatility is rising, and therefore the risk of the option not being exercised is decreasing, the option premium would be increasing.

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?

A call option whose exercise price exceeds the spot price is said to be:

Financial derivatives are powerful tools that can be used by management for purposes of:

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Global Cost and Availability of Capital

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

A/An option can be exercised only on its expiration date, whereas a/an option can be exercised anytime between the date of writing up to and including the exercise date.

The of an option is the value if the option were to be exercised immediately. It is the option's value.