Exam 7: Foreign Currency Derivatives: Futures and Options

If the exchange rate's volatility is rising,and therefore the risk of the option not being exercised is decreasing,the option premium would be increasing.

(True/False)

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Question 21

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 mean:

(Multiple Choice)

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Question 22

Traders by using the historical volatility assume that the immediate future will be the same as the recent past,and the historical volatility will equal the forward-looking volatility.

(True/False)

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Question 23

As long as the option has time remaining before expiration,the option will possess time the time value element.

(True/False)

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Question 24

Dash Brevenshure works for the currency trading unit of ING Bank in London.He speculates that in the coming months the dollar will rise sharply vs.the pound.What should Dash do to act on his speculation?

(Multiple Choice)

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Question 25

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 exercise price of giving the purchaser the right to sell pounds in June has a cost per pound of for a total price of .

(Multiple Choice)

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Question 26

Peter Simpson thinks that the U.K.pound will cost $1.43/£ in six months.A 6-month currency futures contract is available today at a rate of $1.44/£.If Peter was to speculate in the currency futures market,and his expectations are correct,which of the following strategies would earn him a profit?

(Multiple Choice)

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Question 27

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 optiom premium would be:

(Multiple Choice)

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Question 28

The time value is asymmetric in value as you move away from the strike price (i.e.,the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price).

(True/False)

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Question 29

As a general statement,it is safe to say that businesses generally use the for foreign currency option contracts,and individuals and financial institutions typically use the .

(Multiple Choice)

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Question 30

Which of the following statements is NOT true about currency option pricing sensitivities?

(Multiple Choice)

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Question 31

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's expectations are correct,then he could profit in the forward market by and then .

(Multiple Choice)

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Question 32

The Phi of an option is defined as:

(Multiple Choice)

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Question 33

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

(Multiple Choice)

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Question 34

Your U.S firm has an accounts payable denominated in UK pounds due in 6 months.To protect yourself against unexpected changes in the dollar/pound exchange rate you should:

(Multiple Choice)

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Question 35

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

(Multiple Choice)

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Question 36

The higher the delta the greater the probability of the option expiring in-the-money.

(True/False)

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Question 37

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

(Essay)

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Question 38

The primary problem with volatility is that it is unobservable; it is the only input into the option pricing formula that is determined subjectively by the trader pricing the option.

(True/False)

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Question 39

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02.What is the break-even price for the option?

(Multiple Choice)

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Question 40

Showing 21 - 40 of 88

If the exchange rate's volatility is rising,and therefore the risk of the option not being exercised is decreasing,the option premium would be increasing.

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 mean:

Traders by using the historical volatility assume that the immediate future will be the same as the recent past,and the historical volatility will equal the forward-looking volatility.

As long as the option has time remaining before expiration,the option will possess time the time value element.

Dash Brevenshure works for the currency trading unit of ING Bank in London.He speculates that in the coming months the dollar will rise sharply vs.the pound.What should Dash do to act on his speculation?

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 exercise price of giving the purchaser the right to sell pounds in June has a cost per pound of for a total price of .

Peter Simpson thinks that the U.K.pound will cost $1.43/£ in six months.A 6-month currency futures contract is available today at a rate of $1.44/£.If Peter was to speculate in the currency futures market,and his expectations are correct,which of the following strategies would earn him a profit?

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 optiom premium would be:

The time value is asymmetric in value as you move away from the strike price (i.e.,the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price).

As a general statement,it is safe to say that businesses generally use the for foreign currency option contracts,and individuals and financial institutions typically use the .

Which of the following statements is NOT true about currency option pricing sensitivities?

The Phi of an option is defined as:

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

Your U.S firm has an accounts payable denominated in UK pounds due in 6 months.To protect yourself against unexpected changes in the dollar/pound exchange rate you should:

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

The higher the delta the greater the probability of the option expiring in-the-money.

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

The primary problem with volatility is that it is unobservable; it is the only input into the option pricing formula that is determined subjectively by the trader pricing the option.

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02.What is the break-even price for the option?

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Interest Risk and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

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Exam 7: Foreign Currency Derivatives: Futures and Options

If the exchange rate's volatility is rising,and therefore the risk of the option not being exercised is decreasing,the option premium would be increasing.

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 mean:

Traders by using the historical volatility assume that the immediate future will be the same as the recent past,and the historical volatility will equal the forward-looking volatility.

As long as the option has time remaining before expiration,the option will possess time the time value element.

Dash Brevenshure works for the currency trading unit of ING Bank in London.He speculates that in the coming months the dollar will rise sharply vs.the pound.What should Dash do to act on his speculation?

Peter Simpson thinks that the U.K.pound will cost $1.43/£ in six months.A 6-month currency futures contract is available today at a rate of $1.44/£.If Peter was to speculate in the currency futures market,and his expectations are correct,which of the following strategies would earn him a profit?

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 optiom premium would be:

The time value is asymmetric in value as you move away from the strike price (i.e.,the time value at two cents above the strike price is not necessarily the same as the time value two cents below the strike price).

As a general statement,it is safe to say that businesses generally use the ________ for foreign currency option contracts,and individuals and financial institutions typically use the ________.

Which of the following statements is NOT true about currency option pricing sensitivities?

The Phi of an option is defined as:

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

Your U.S firm has an accounts payable denominated in UK pounds due in 6 months.To protect yourself against unexpected changes in the dollar/pound exchange rate you should:

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

The higher the delta the greater the probability of the option expiring in-the-money.

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

The primary problem with volatility is that it is unobservable; it is the only input into the option pricing formula that is determined subjectively by the trader pricing the option.

A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02.What is the break-even price for the option?

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Interest Risk and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

As a general statement,it is safe to say that businesses generally use the for foreign currency option contracts,and individuals and financial institutions typically use the .