Exam 7: Foreign Currency Derivatives: Futures and Options

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

The majority of the option premium is lost in the final days prior to expiration.

Standard foreign currency options are priced around the forward rate.

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.

If the rho of the specific option is known, it is easy to determine how the option's value will change as the spot rate changes.

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

For a $1.50/£ call option with an initial premium of $0.033/£ and a phi value of -0.2, after an increase in the foreign interest (the pound sterling rate) rate from 8% to 9% - the new option premium would be:

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. Jasper should ________ at ________ to profit from changing currency values.

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.

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

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

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

The buyer (long) of a put option:

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

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

TABLE 7.1 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:

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.

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

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