Question 1

Which of the following is NOT true for the writer of a put option?

Accepted Answer

A)  The maximum loss is limited to the strike price of the underlying asset less the premium. 
B)  The gain or loss is equal to but of the opposite sign of the buyer of a put option. 
C)  The maximum gain is the amount of the premium. 
D)  All of the above are true. 
A)  The maximum loss is limited to the strike price of the underlying asset less the premium. 
B)  The gain or loss is equal to but of the opposite sign of the buyer of a put option. 
C)  The maximum gain is the amount of the premium. 
D)  All of the above are true.

Question 2

Traders who believe volatilities will fall significantly in the near-term will:

Accepted Answer

A)  sell futures now. 
B)  buy options now. 
C)  sell options now. 
D)  buy futures now. 
A)  sell futures now. 
B)  buy options now. 
C)  sell options now. 
D)  buy futures now.

Question 3

Use the table to answer following question(s).
April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts).
  
-Refer to Table 7.1. The May call option on pounds with a strike price of 1440 means:

Accepted Answer

A)  $88/£ per contract. 
B)  $0.88/£. 
C)  $0.0088/£. 
D)  none of the above 
A)  $88/£ per contract. 
B)  $0.88/£. 
C)  $0.0088/£. 
D)  none of the above

Question 4

Option values increase with the length of time to maturity. The expected change in the option premium from a small change in the time to expiration is termed delta.

Accepted Answer

A) True 
 B)False

Question 5

The Phi of an option is defined as:

Accepted Answer

A)  expected change in the option premium for a small change in time to expiration. 
B)  expected change in the option premium for a small change in volatility. 
C)  expected change in the option premium for a small change in the foreign interest rate. 
D)  expected change in the option premium for a small change in the domestic interest rate. 
A)  expected change in the option premium for a small change in time to expiration. 
B)  expected change in the option premium for a small change in volatility. 
C)  expected change in the option premium for a small change in the foreign interest rate. 
D)  expected change in the option premium for a small change in the domestic interest rate.

Question 6

A speculator in the futures market wishing to lock in a price at which they could ________ a foreign currency will ________ a futures contract.

Accepted Answer

A)  buy; sell 
B)  sell; buy 
C)  buy; buy 
D)  none of the above 
A)  buy; sell 
B)  sell; buy 
C)  buy; buy 
D)  none of the above

Question 7

A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

Accepted Answer

A)  future 
B)  forward 
C)  option 
D)  swap 
A)  future 
B)  forward 
C)  option 
D)  swap

Question 8

Option premiums deteriorate at a/an ________ as they approach expiration.

Accepted Answer

A)  increasing rate 
B)  proportional 
C)  decreasing rate 
D)  less than proportional rate 
A)  increasing rate 
B)  proportional 
C)  decreasing rate 
D)  less than proportional rate

Question 9

As a general statement, it is safe to say that businesses generally use the ________ for foreign currency option contracts, and individuals and financial institutions typically use the ________.

Accepted Answer

A)  exchange markets; over-the-counter 
B)  over-the-counter; exchange markets 
C)  private; government sponsored 
D)  government sponsored; private 
A)  exchange markets; over-the-counter 
B)  over-the-counter; exchange markets 
C)  private; government sponsored 
D)  government sponsored; private

Question 10

A put option on yen is written with a strike price of ¥105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

Accepted Answer

A)  ¥100/$ 
B)  ¥105/$ 
C)  ¥110/$ 
D)  ¥115/$ 
A)  ¥100/$ 
B)  ¥105/$ 
C)  ¥110/$ 
D)  ¥115/$

Question 11

The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder.

Accepted Answer

A) True 
 B)False

Question 12

A foreign currency ________ option gives the holder the right to ________ a foreign currency, whereas a foreign currency ________ option gives the holder the right to ________ an option.

Accepted Answer

A)  call, buy, put, sell 
B)  call, sell, put, buy 
C)  put, hold, call, release 
D)  none of the above 
A)  call, buy, put, sell 
B)  call, sell, put, buy 
C)  put, hold, call, release 
D)  none of the above

Question 13

Which of the following is NOT true for the writer of a call option?

Accepted Answer

A)  The maximum loss is unlimited. 
B)  The maximum gain is unlimited. 
C)  The gain or loss is equal to but of the opposite sign of the buyer of a call option. 
D)  All of the above are true. 
A)  The maximum loss is unlimited. 
B)  The maximum gain is unlimited. 
C)  The gain or loss is equal to but of the opposite sign of the buyer of a call option. 
D)  All of the above are true.

Question 14

Which of the following is NOT a contract specification for currency futures trading on an organized exchange?

Accepted Answer

A)  size of the contract 
B)  maturity date 
C)  last trading day 
D)  All of the above are specified. 
A)  size of the contract 
B)  maturity date 
C)  last trading day 
D)  All of the above are specified.

Question 15

The price of an option is always somewhat greater than its intrinsic value, since there is always some chance that the intrinsic value will rise between the present and the expiration date.

Accepted Answer

A) True 
 B)False

Question 16

Historical volatility is the correct method for the calculation of the option volatility.

Accepted Answer

A) True 
 B)False

Question 17

A foreign currency ________ contract calls for the future delivery of a standard amount of foreign exchange at a fixed time, place, and price.

Accepted Answer

A)  futures 
B)  forward 
C)  option 
D)  swap 
A)  futures 
B)  forward 
C)  option 
D)  swap

Question 18

The time value is asymmetric in value as you move away from the strike price (i.e., the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price).

Accepted Answer

A) True 
 B)False

Question 19

Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$, he will earn a profit of:

Accepted Answer

A)  $146.09. 
B)  $101,460.94. 
C)  $1460.94. 
D)  nothing; he will lose money 
A)  $146.09. 
B)  $101,460.94. 
C)  $1460.94. 
D)  nothing; he will lose money

Question 20

The expected change in the option premium from a small change in the domestic interest rate (home currency) is term rho.

Accepted Answer

A) True 
 B)False

Which of the following is NOT true for the writer of a put option?

Traders who believe volatilities will fall significantly in the near-term will:

Use the table to answer following question(s). April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts). -Refer to Table 7.1. The May call option on pounds with a strike price of 1440 means:

Option values increase with the length of time to maturity. The expected change in the option premium from a small change in the time to expiration is termed delta.

The Phi of an option is defined as:

A speculator in the futures market wishing to lock in a price at which they could a foreign currency will a futures contract.

A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

Option premiums deteriorate at a/an ________ as they approach expiration.

As a general statement, it is safe to say that businesses generally use the for foreign currency option contracts, and individuals and financial institutions typically use the .

A put option on yen is written with a strike price of ¥105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder.

A foreign currency option gives the holder the right to a foreign currency, whereas a foreign currency option gives the holder the right to an option.

Which of the following is NOT true for the writer of a call option?

Which of the following is NOT a contract specification for currency futures trading on an organized exchange?

The price of an option is always somewhat greater than its intrinsic value, since there is always some chance that the intrinsic value will rise between the present and the expiration date.

Historical volatility is the correct method for the calculation of the option volatility.

A foreign currency ________ contract calls for the future delivery of a standard amount of foreign exchange at a fixed time, place, and price.

The time value is asymmetric in value as you move away from the strike price (i.e., the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price).

The expected change in the option premium from a small change in the domestic interest rate (home currency) is term rho.

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

Which of the following is NOT true for the writer of a put option?

Traders who believe volatilities will fall significantly in the near-term will:

Use the table to answer following question(s). April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts). -Refer to Table 7.1. The May call option on pounds with a strike price of 1440 means:

Option values increase with the length of time to maturity. The expected change in the option premium from a small change in the time to expiration is termed delta.

The Phi of an option is defined as:

A speculator in the futures market wishing to lock in a price at which they could ________ a foreign currency will ________ a futures contract.

A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

Option premiums deteriorate at a/an ________ as they approach expiration.

As a general statement, it is safe to say that businesses generally use the ________ for foreign currency option contracts, and individuals and financial institutions typically use the ________.

A put option on yen is written with a strike price of ¥105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder.

A foreign currency ________ option gives the holder the right to ________ a foreign currency, whereas a foreign currency ________ option gives the holder the right to ________ an option.

Which of the following is NOT true for the writer of a call option?

Which of the following is NOT a contract specification for currency futures trading on an organized exchange?

The price of an option is always somewhat greater than its intrinsic value, since there is always some chance that the intrinsic value will rise between the present and the expiration date.

Historical volatility is the correct method for the calculation of the option volatility.

A foreign currency ________ contract calls for the future delivery of a standard amount of foreign exchange at a fixed time, place, and price.

The time value is asymmetric in value as you move away from the strike price (i.e., the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price).

The expected change in the option premium from a small change in the domestic interest rate (home currency) is term rho.

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 speculator in the futures market wishing to lock in a price at which they could a foreign currency will a futures contract.

As a general statement, it is safe to say that businesses generally use the for foreign currency option contracts, and individuals and financial institutions typically use the .

A foreign currency option gives the holder the right to a foreign currency, whereas a foreign currency option gives the holder the right to an option.