Question 1

In reference to the derivatives market,a "speculator":

Accepted Answer

A)  attempts to profit from a change in the futures price. 
B)  wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position. 
C)  plays a zero-sum game. 
D)  passes off the risk of price variation to other player, who is better able, or at least more willing, to bear this risk. 
A)  attempts to profit from a change in the futures price. 
B)  wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position. 
C)  plays a zero-sum game. 
D)  passes off the risk of price variation to other player, who is better able, or at least more willing, to bear this risk. A

Question 2

Assume that the German mark spot rate is $0.5891 and the six-month forward rate is $0.5971. Also, assume that the six-month Eurodollar rate is 6%.
-You paid $0.1 for a one-year European call option for £1 with the strike price of $1.7/£.At which exchange rates on the maturity date will you exercise your option?

Accepted Answer

A)  Less than $1.7/£ 
B)  Less than $1.8/£ 
C)  More than $1.7/£ 
D)  More than $1.8/£ 
A)  Less than $1.7/£ 
B)  Less than $1.8/£ 
C)  More than $1.7/£ 
D)  More than $1.8/£ C

Question 3

The following Eurodollar futures contract is quoted in the Wall Street Journal:
$\begin{array} {llll  } 
& \text {Open }& \text { high}& \text {low }& \text {settle }& \text {ohg }\
\text {Mar 10 }&93.56&93 .62 & 93.53 & 93.59&\dots\
\end{array}$

-Next day,the implied 3-month LIBOR yield drops by 0.10%.What is the new settlement price?

Accepted Answer

A)  93.49 
B)  93.59 
C)  93.69 
D)  cannot be determined 
A)  93.49 
B)  93.59 
C)  93.69 
D)  cannot be determined C

Question 4

Today's settlement price on a Chicago Mercantile Exchange (CME) Yen futures contract is $0.8011/¥100. Your margin account currently has a balance of $2,000. The next three days' settlement prices are $0.8057/¥100, $0.7996/¥100, and $0.7985/¥100. (The contractual size of one CME Yen contract is ¥12,500,000).
-If you have a long position in one futures contract,the changes in the margin account from daily marking-to-market,will result in the balance of the margin account after the third day to be:

Accepted Answer

A)  $1,425. 
B)  $1,675. 
C)  $2,000. 
D)  $3,425. 
A)  $1,425. 
B)  $1,675. 
C)  $2,000. 
D)  $3,425.

Question 5

The value of a European call will increase with all of the following except:

Accepted Answer

A)  the spot exchange rate. 
B)  the exercise price. 
C)  time to maturity. 
D)  the foreign interest rate. 
A)  the spot exchange rate. 
B)  the exercise price. 
C)  time to maturity. 
D)  the foreign interest rate.

Question 6

The "open interest" shown in currency futures quotations is:

Accepted Answer

A)  the total number of people indicating interest in buying the contracts in the near future. 
B)  the total number of people indicating interest in selling the contracts in the near future. 
C)  the total number of people indicating interest in buying or selling the contracts in the near future. 
D)  the total number of long or short contracts outstanding for the particular delivery month. 
A)  the total number of people indicating interest in buying the contracts in the near future. 
B)  the total number of people indicating interest in selling the contracts in the near future. 
C)  the total number of people indicating interest in buying or selling the contracts in the near future. 
D)  the total number of long or short contracts outstanding for the particular delivery month.

Question 7

Given the following information:
 $\begin{array}{ll}
\text { Spot rate today: } & \$ 1.00 \text { euro } \
\text { Your expectation of the spot rate in four months: } & \$ 0.93 / \text { euro } \
\text { four month European call option: } & \
\quad 
\text { strike price } & \$ 0.99 \text { euro } \
\text { premium }& \$ 0.02 / \text { euro }\

\text { four month European put option: }  \
\text { strike price } & \$ 0.99 \text { /euro }\
\text { premium } & \$ 0.03 / \text { euro } \
\end{array}$ If your expectations prove correct at maturity:
a)What would be your profit per euro from speculating in the options market? Show the strategy that would give the highest payoff given your expectation about the future exchange rate.
b)Graphically illustrate the loss and profit positions for the speculation in the options market.Label your graph clearly.

Accepted Answer

The answer of Given the following information:
 \(\begin{array}{ll}
\text { Spot...

Question 8

Eurodollar interest rate futures contracts have all of the following characteristics except:

Accepted Answer

A)  the futures contract is written on a hypothetical $1,000,000 180-day deposit of Eurodollars. 
B)  no actual delivery of Eurodollars takes place. 
C)  the contracts are made out many years into the future. 
D)  the contracts are widely used. 
A)  the futures contract is written on a hypothetical $1,000,000 180-day deposit of Eurodollars. 
B)  no actual delivery of Eurodollars takes place. 
C)  the contracts are made out many years into the future. 
D)  the contracts are widely used.

Question 9

You have one short position in foreign exchange futures contracts on £s.The contract size is £100,000.During the day the futures exchange rate (measured in $/£)increased by $0.01/£ while the spot exchange rate decreased by 0.01.As a result,you:

Accepted Answer

A)  have won $1,000. 
B)  have lost $1,000. 
C)  have neither won nor lost any money. 
D)  are unable to answer based on the information provided. 
A)  have won $1,000. 
B)  have lost $1,000. 
C)  have neither won nor lost any money. 
D)  are unable to answer based on the information provided.

Question 10

In reference to the derivatives market,a "hedger":

Accepted Answer

A)  attempts to profit from a change in the futures price. 
B)  wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position. 
C)  plays a zero-sum game. 
D)  speculates the price movement. 
A)  attempts to profit from a change in the futures price. 
B)  wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position. 
C)  plays a zero-sum game. 
D)  speculates the price movement.

Question 11

Assume that the German mark spot rate is $0.5891 and the six-month forward rate is $0.5971. Also, assume that the six-month Eurodollar rate is 6%.
-When the current spot exchange rate exceeds the exercise price which of the following combinations of statements is true?
(i)A call option is in the money.
(ii)A call option is out of the money.
(iii)A put option is in the money.
(iv)A put option is out of the money.

Accepted Answer

A)  (i) and (ii) 
B)  (i) and (iii) 
C)  (i) and (iv) 
D)  (ii) and (iv) 
A)  (i) and (ii) 
B)  (i) and (iii) 
C)  (i) and (iv) 
D)  (ii) and (iv)

Question 12

What is the lowest possible 1-year forward $/£ exchange rate FROM THE LIST BELOW?

Accepted Answer

A)  $1.93/£ 
B)  $1.96/£ 
C)  $2.01/£ 
D)  $2.05/£ 
A)  $1.93/£ 
B)  $1.96/£ 
C)  $2.01/£ 
D)  $2.05/£

Question 13

Assume that the spot Euro is $1.2000 and the six-months forward rate is $1.2100.Determine the minimum price for which a six-month American put should sell for.The strike price is $1.1900 and the annualized six-month Eurodollar rate is 4%.

Accepted Answer

P_a @#IMG-DLM& Max[(E - S_t), (E -

Question 14

What is the highest possible 1-year forward $/£ exchange rate FROM THE LIST BELOW?

Accepted Answer

A)  $1.93/£ 
B)  $1.97/£ 
C)  $2.03/£ 
D)  $2.05/£ 
A)  $1.93/£ 
B)  $1.97/£ 
C)  $2.03/£ 
D)  $2.05/£

Question 15

Today's settlement price on a Chicago Mercantile Exchange (CME)Euro futures contract is $1.2010/EUR.Your margin account currently has a balance of $2,500.The next two days' settlement prices are $1.2210/EUR and $1.2010/EUR.(The contractual size of one CME EURO contract is EUR 125,000).Calculate your margin account balance at the end of the first and second day if you have a long position on Euro futures.

Accepted Answer

Day 1: 2,500 + 125,0

Question 16

In the absence of transactions costs,for the same maturity and currency:

Accepted Answer

A)  the futures price is always higher than the forward rate. 
B)  the forward rate is always higher than the futures price. 
C)  the futures price and the forward rate are the same. 
D)  the futures price and the forward rate are not related. 
A)  the futures price is always higher than the forward rate. 
B)  the forward rate is always higher than the futures price. 
C)  the futures price and the forward rate are the same. 
D)  the futures price and the forward rate are not related.

Question 17

Suppose the Canadian Wheat Pool wants to hedge a US dollar payable using futures contracts that trade on the Chicago Mercantile exchange.

Accepted Answer

A)  The Wheat Pool should buy Canadian dollar futures. 
B)  The Wheat Pool should sell Canadian dollar futures. 
C)  The Wheat Pool cannot hedge this position. 
D)  The Wheat Pool should not use the Chicago Mercantile exchange. 
A)  The Wheat Pool should buy Canadian dollar futures. 
B)  The Wheat Pool should sell Canadian dollar futures. 
C)  The Wheat Pool cannot hedge this position. 
D)  The Wheat Pool should not use the Chicago Mercantile exchange.

Question 18

Which of the following statements is true?

Accepted Answer

A)  The buyer of a forward contract holds a short position. 
B)  The buyer of a futures contract holds a short position. 
C)  The buyer of a forward contract holds a wining position. 
D)  The buyer of a futures contract holds a long position. 
A)  The buyer of a forward contract holds a short position. 
B)  The buyer of a futures contract holds a short position. 
C)  The buyer of a forward contract holds a wining position. 
D)  The buyer of a futures contract holds a long position.

Question 19

The following Eurodollar futures contract is quoted in the Wall Street Journal:
$\begin{array} {llll  } 
& \text {Open }& \text { high}& \text {low }& \text {settle }& \text {ohg }\
\text {Mar 10 }&93.56&93 .62 & 93.53 & 93.59&\dots\
\end{array}$

-Determine the implied 3-month LIBOR yield for March 2010.

Accepted Answer

A)  6.38% 
B)  6.41% 
C)  9.36% 
D)  need more information 
A)  6.38% 
B)  6.41% 
C)  9.36% 
D)  need more information

Question 20

When the LIBOR yield drops,the:

Accepted Answer

A)  value of a eurodollar futures contract drops. 
B)  value of a eurodollar futures contract remains unchanged. 
C)  value of a eurodollar futures contract increases. 
D)  value of a eurodollar futures contract might drop or increase depending on the circumstances. 
A)  value of a eurodollar futures contract drops. 
B)  value of a eurodollar futures contract remains unchanged. 
C)  value of a eurodollar futures contract increases. 
D)  value of a eurodollar futures contract might drop or increase depending on the circumstances.

In reference to the derivatives market,a "speculator":

The following Eurodollar futures contract is quoted in the Wall Street Journal: Open high low settle ohg Mar 10 93.56 93.62 93.53 93.59 \ldots -Next day,the implied 3-month LIBOR yield drops by 0.10%.What is the new settlement price?

The value of a European call will increase with all of the following except:

The "open interest" shown in currency futures quotations is:

Eurodollar interest rate futures contracts have all of the following characteristics except:

You have one short position in foreign exchange futures contracts on £s.The contract size is £100,000.During the day the futures exchange rate (measured in $/£)increased by $0.01/£ while the spot exchange rate decreased by 0.01.As a result,you:

In reference to the derivatives market,a "hedger":

What is the lowest possible 1-year forward $/£ exchange rate FROM THE LIST BELOW?

Assume that the spot Euro is $1.2000 and the six-months forward rate is $1.2100.Determine the minimum price for which a six-month American put should sell for.The strike price is $1.1900 and the annualized six-month Eurodollar rate is 4%.

What is the highest possible 1-year forward $/£ exchange rate FROM THE LIST BELOW?

In the absence of transactions costs,for the same maturity and currency:

Suppose the Canadian Wheat Pool wants to hedge a US dollar payable using futures contracts that trade on the Chicago Mercantile exchange.

Which of the following statements is true?

The following Eurodollar futures contract is quoted in the Wall Street Journal: Open high low settle ohg Mar 10 93.56 93.62 93.53 93.59 \ldots -Determine the implied 3-month LIBOR yield for March 2010.

When the LIBOR yield drops,the:

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Management of Economic Exposure

Management of Transaction Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

Exports and Imports

International Tax Environment

Corporate Governance Around the World

Filters

Exam 9: Futures and Options on Foreign Exchange

In reference to the derivatives market,a "speculator":

The following Eurodollar futures contract is quoted in the Wall Street Journal: Open high low settle ohg Mar 10 93.56 93.62 93.53 93.59 \ldots -Next day,the implied 3-month LIBOR yield drops by 0.10%.What is the new settlement price?

The value of a European call will increase with all of the following except:

The "open interest" shown in currency futures quotations is:

Eurodollar interest rate futures contracts have all of the following characteristics except:

You have one short position in foreign exchange futures contracts on £s.The contract size is £100,000.During the day the futures exchange rate (measured in $/£)increased by $0.01/£ while the spot exchange rate decreased by 0.01.As a result,you:

In reference to the derivatives market,a "hedger":

What is the lowest possible 1-year forward $/£ exchange rate FROM THE LIST BELOW?

Assume that the spot Euro is $1.2000 and the six-months forward rate is $1.2100.Determine the minimum price for which a six-month American put should sell for.The strike price is $1.1900 and the annualized six-month Eurodollar rate is 4%.

What is the highest possible 1-year forward $/£ exchange rate FROM THE LIST BELOW?

In the absence of transactions costs,for the same maturity and currency:

Suppose the Canadian Wheat Pool wants to hedge a US dollar payable using futures contracts that trade on the Chicago Mercantile exchange.

Which of the following statements is true?

The following Eurodollar futures contract is quoted in the Wall Street Journal: Open high low settle ohg Mar 10 93.56 93.62 93.53 93.59 \ldots -Determine the implied 3-month LIBOR yield for March 2010.

When the LIBOR yield drops,the:

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Management of Economic Exposure

Management of Transaction Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

Exports and Imports

International Tax Environment

Corporate Governance Around the World

Filters