Exam 7: Foreign Currency Derivatives: Futures and Options

A call option on euros is written with a strike price of $1.30/euro.Which spot price maximizes your profit if you choose to exercise the option before maturity?

The Lambda of an option is defined as:

The expected change in the option premium from a small change in the foreign interest rate (foreign currency)is term vega.

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

Most option profits and losses are realized through taking actual delivery of the currency rather than offsetting contracts.

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

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

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

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

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 would earn a higher rate of return by buying yen and selling a forward contract than if he had invested her money in 6-month US Treasury securities at an annual rate of 2.50%.

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

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

If the spot rate changes from $1.70/£ to $1.71/£ and there is an option with an initial premium of $0.033/£ and a delta of 0.5,then the new option premium would be:

Option values increase with the length of time to maturity.The expected change in the option premium from a small change in the time to expiration is termed delta.

The Rho of an option is defined as:

The expected change in the option premium from a small change in the domestic interest rate (home currency)is term rho.

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.If Jasper buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$,he will earn a profit of:

A put option on yen is written with a strike price of ¥105.00/$.Which spot price maximizes your profit if you choose to exercise the option before maturity?

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.If Jasper buys $100,000 worth of yen at today's spot price her potential gain is ________ and her potential loss is ________.

Jack Hemmings bought a 3-month British pound futures contract for $1.4400/£ only to see the dollar appreciate to a value of $1.4250 at which time he sold the pound futures.If each pound futures contract is for an amount of £62,500,how much money did Jack gain or lose from his speculation with pound futures?