Exam 5: Currency Derivatives

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.

The writer of a call option is obligated to sell the underlying currency to the buyer of the option if the option is exercised.

Assume no transactions costs exist for any futures or forward contracts. The price of British pound futures with a settlement date 180 days from now will:

When you own ____, there is no obligation on your part; however, when you own ____, there is an obligation on your part.

Which of the following would result in a profit on a euro futures contract when the euro depreciates?

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

You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit, with an exercise price of $.86. The option will not be exercised until the expiration date, if at all. If the spot rate of the Canadian dollar is $.78 on the expiration date, your net profit per unit is:

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.

The writer of an currency call option is obligated to buy the currency if the option is exercised.

Assume the spot rate of a currency is $.37 and the 90-day forward rate is $.36. The forward rate of this currency exhibits a ____ of ____ on an annualized basis.

Futures and options are available for cross rates.

If the spot rate of the euro increased substantially over a one-month period, the futures price on euros would likely ____ over that same period.

Because constructing a long straddle in a foreign currency requires payment of two option premiums, the straddle becomes profitable only if the foreign currency appreciates or depreciates substantially.

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

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.

A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (aFter accounting for the premium paid)?

Which of the following is correct?

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

If the forward rate for a currency is less than the spot rate for that currency, the forward rate is said to exhibit a premium.

When the futures price is equal to the spot rate of a given currency, and the foreign country exhibits a higher interest rate than the U.S. interest rate, astute investors may attempt to simultaneously ____ the foreign currency, invest it in the foreign country, and ____ futures in the foreign currency.