Question 1

Which of the following best describes the difference between American and European options?

Accepted Answer

A)  They are traded on different exchanges. 
B)  They are for different currencies. 
C)  They use different exchange rate quotations. 
D)  None of these. 
A)  They are traded on different exchanges. 
B)  They are for different currencies. 
C)  They use different exchange rate quotations. 
D)  None of these.

Question 2

Given the following information:
 $\begin{array}{ll}
\text { Spot rate today: } & \$ 1.50/ \text { SF } \
\text { Your expectation of the spot rate in three months: } & \$1.55 / \text { SF } \
\text { four month European call option: } & \
\quad 
\text { strike price } & \$ 1.51/ \text { SF } \
\text { premium }& \$ 0.02 / \text { SF }\

\text { four month European put option: }  \
\text { strike price } & \$1.51/ \text { SF }\
\text { premium } & \$ 0.03 / \text { SF } \
\end{array}$ If your expectations prove correct at maturity:
a)What would be your profit per Swiss franc 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

a)sell put

Question 3

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 short position on Euro futures.

Accepted Answer

Day 1: 2,500 + 125,0

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 short 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)  $2,000. 
C)  $2,325. 
D)  $3,425. 
A)  $1,425. 
B)  $2,000. 
C)  $2,325. 
D)  $3,425.

Question 5

How the value of a European put option for £1 will change if the current exchange rate will instantly increase from $1.4/£ to $1.5/£?

Accepted Answer

A)  Increase by $0.1. 
B)  Increase by an amount that cannot be determined based on the available information. 
C)  Decrease by $0.1. 
D)  Decrease by an amount that cannot be determined based on the available information. 
A)  Increase by $0.1. 
B)  Increase by an amount that cannot be determined based on the available information. 
C)  Decrease by $0.1. 
D)  Decrease by an amount that cannot be determined based on the available information.

Question 6

An investor believes that the price of a stock,say IBM's shares,will increase in the next 60 days.If the investor is correct,which combination of the following investment strategies will show a profit in all the choices?
(i)- buy the stock and hold it for 60 days
(ii)- buy a put option
(iii)- sell (write)a call option
(iv)- buy a call option
(v)- sell (write)a put option

Accepted Answer

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

Question 7

Comparing "forward" and "futures" exchange contracts,we can say that:

Accepted Answer

A)  they are both "marked-to-market" daily. 
B)  their major difference is in the way the underlying asset is priced for spot purchase or sale. 
C)  a futures contract is negotiated by open outcry between floor brokers or traders and is traded on unorganized exchanges, while forward contract is tailor-made by a domestic bank for its clients and is traded OTC. 
D)  futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC. 
A)  they are both "marked-to-market" daily. 
B)  their major difference is in the way the underlying asset is priced for spot purchase or sale. 
C)  a futures contract is negotiated by open outcry between floor brokers or traders and is traded on unorganized exchanges, while forward contract is tailor-made by a domestic bank for its clients and is traded OTC. 
D)  futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC.

Question 8

An "option" is:

Accepted Answer

A)  a contract giving the seller (writer) the right, but not the obligation, to buy or sell a given quantity of an asset at an specified price at some time in the future. 
B)  a contract giving the owner (buyer) the right, but not the obligation, to buy or sell a given quantity of an asset at a specified price at some time in the future. 
C)  not a derivative, nor a contingent claim, security. 
D)  unlike a futures or forward contract. 
A)  a contract giving the seller (writer) the right, but not the obligation, to buy or sell a given quantity of an asset at an specified price at some time in the future. 
B)  a contract giving the owner (buyer) the right, but not the obligation, to buy or sell a given quantity of an asset at a specified price at some time in the future. 
C)  not a derivative, nor a contingent claim, security. 
D)  unlike a futures or forward contract.

Which of the following best describes the difference between American and European options?

How the value of a European put option for £1 will change if the current exchange rate will instantly increase from $1.4/£ to $1.5/£?

Comparing "forward" and "futures" exchange contracts,we can say that:

An "option" is:

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

Which of the following best describes the difference between American and European options?

How the value of a European put option for £1 will change if the current exchange rate will instantly increase from $1.4/£ to $1.5/£?

Comparing "forward" and "futures" exchange contracts,we can say that:

An "option" is:

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