Question 1

Which of the following statements regarding currency futures contracts and forward contracts is NOT true?

Accepted Answer

A)  A futures contract is a standardized amount per currency whereas the forward contact is for any size desired. 
B)  A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year. 
C)  Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages. 
D)  All of the above are true. 
A)  A futures contract is a standardized amount per currency whereas the forward contact is for any size desired. 
B)  A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year. 
C)  Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages. 
D)  All of the above are true.

Question 2

Which of the following statements is NOT true about currency option pricing sensitivities?

Accepted Answer

A)  The higher the delta, the more likely the option will move in-the-money. 
B)  Premiums rise with increases in volatility. 
C)  Premiums are relatively insensitive during the first days. 
D)  Increases in domestic interest rates cause decreasing call option premiums. 
A)  The higher the delta, the more likely the option will move in-the-money. 
B)  Premiums rise with increases in volatility. 
C)  Premiums are relatively insensitive during the first days. 
D)  Increases in domestic interest rates cause decreasing call option premiums.

Question 3

The value of a European style call option is the sum of two components:

Accepted Answer

A)  the present value plus the intrinsic value. 
B)  the time value plus the present value. 
C)  the intrinsic value plus the time value. 
D)  the intrinsic value plus the standard deviation. 
A)  the present value plus the intrinsic value. 
B)  the time value plus the present value. 
C)  the intrinsic value plus the time value. 
D)  the intrinsic value plus the standard deviation.

Question 4

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

Accepted Answer

A)  $2.03/£ 
B)  $2.07/£ 
C)  $2.05/£ 
D)  The answer depends upon if this is a long or a short call option. 
A)  $2.03/£ 
B)  $2.07/£ 
C)  $2.05/£ 
D)  The answer depends upon if this is a long or a short call option.

Question 5

If an American-style option possesses time value on any day up to expiration date, the option holder would get more by selling it than exercising it.

Accepted Answer

A) True 
 B)False

Question 6

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 her potential gain is ________ and her potential loss is ________.

Accepted Answer

A)  $100,000; unlimited 
B)  unlimited; unlimited 
C)  $100,000; $100,000 
D)  unlimited; $100,000 
A)  $100,000; unlimited 
B)  unlimited; unlimited 
C)  $100,000; $100,000 
D)  unlimited; $100,000

Question 7

The maximum gain for the purchaser of a call option contract is ________ while the maximum loss is ________.

Accepted Answer

A)  unlimited; the premium paid. 
B)  the premium paid; unlimited. 
C)  unlimited; unlimited. 
D)  unlimited; the value of the underlying asset. 
A)  unlimited; the premium paid. 
B)  the premium paid; unlimited. 
C)  unlimited; unlimited. 
D)  unlimited; the value of the underlying asset.

Question 8

The buyer (long) of a put option:

Accepted Answer

A)  has a maximum loss equal to the premium paid. 
B)  has a gain equal to but opposite in sign to the writer of the option. 
C)  has maximum gain potential limited to the difference between the strike price and the premium paid. 
D)  all of the above 
A)  has a maximum loss equal to the premium paid. 
B)  has a gain equal to but opposite in sign to the writer of the option. 
C)  has maximum gain potential limited to the difference between the strike price and the premium paid. 
D)  all of the above

Which of the following statements regarding currency futures contracts and forward contracts is NOT true?

Which of the following statements is NOT true about currency option pricing sensitivities?

The value of a European style call option is the sum of two components:

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

If an American-style option possesses time value on any day up to expiration date, the option holder would get more by selling it than exercising it.

The maximum gain for the purchaser of a call option contract is while the maximum loss is .

The buyer (long) of a put option:

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

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Exam 7: Foreign Currency Derivatives: Futures and Options

Which of the following statements regarding currency futures contracts and forward contracts is NOT true?

Which of the following statements is NOT true about currency option pricing sensitivities?

The value of a European style call option is the sum of two components:

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

If an American-style option possesses time value on any day up to expiration date, the option holder would get more by selling it than exercising it.

The maximum gain for the purchaser of a call option contract is ________ while the maximum loss is ________.

The buyer (long) of a put option:

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

The maximum gain for the purchaser of a call option contract is while the maximum loss is .