Exam 8: Foreign Currency Derivatives and Swaps

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

The main advantage(s)of over-the-counter foreign currency options over exchange traded options is(are)

How does counterparty risk influence a firm's decision to trade exchange-traded derivatives rather than over-the-counter derivatives?

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

Compare and contrast foreign currency options and futures.Identify situations when you may prefer one vs.the other when speculating on foreign exchange.

An agreement to swap a fixed interest payment for a floating interest payment would be considered a/an ________.

Which of the following is NOT a factor in determining the price of a currency option?

Assume that a call option has an exercise price of $1.50/³.At a spot price of $1.45/³,the call option has ________.

A speculator that has ________ a futures contract has taken a ________ position.

About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller.

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

Polaris Inc.has a significant amount of bonds outstanding denominated in yen because of the attractive variable rate available to the firm in yen when the loan was made.However,Polaris does not have significant receivables in yen.Options available to Polaris to consider the risk of such a loan include which one of the following?

A call option whose exercise price exceeds the spot rate is said to be ________.

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

A/an ________ is a contract to lock in today interest rates over a given period of time.

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

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

Instruction 8.1: For the following problem(s), consider these debt strategies being considered by a corporate borrower. Each is intended to provide $1,000,000 in financing for a three-year period. ∙ Strategy #1: Borrow $1,000,000 for three years at a fixed rate of interest of 7%. ∙ Strategy #2: Borrow $1,000,000 for three years at a floating rate of LIBOR + 2%, to be reset annually. The current LIBOR rate is 3.50% ∙ Strategy #3: Borrow $1,000,000 for one year at a fixed rate, and then renew the credit annually. The current one-year rate is 5%. -Refer to Instruction 8.1.If your firm felt very confident that interest rates would fall or,at worst,remain at current levels,and were very confident about the firm's credit rating for the next 10 years,which strategy (strategies)would you likely choose? (Assume your firm is borrowing money.)

TABLE 8.1 Use the below mentioned table to answer the following question(s). April 19, 2010, British Pound Option Prices (cents per pound, 62,500 pound contracts). -Refer to Table 8.1.The exercise price of ________ giving the purchaser the right to sell pounds in June has a cost per pound of ________ for a total price of ________.

TABLE 8.1 Use the below mentioned table to answer the following question(s). April 19, 2010, British Pound Option Prices (cents per pound, 62,500 pound contracts). -Refer to Table 8.1.What was the closing price of the British pound on April 18,2010?