Question 1

Historical volatility is the correct method for the calculation of the option volatility.

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

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.

Accepted Answer

A)  future 
B)  forward 
C)  option 
D)  swap 
A)  future 
B)  forward 
C)  option 
D)  swap

Question 4

For a $1.50/£ call option with an initial premium of $0.033/£ and a lambda of 0.4,after an increase in annual volatility of 1 percent point - for example from 10% to 11% - the new optiom premium would be:

Accepted Answer

A)  $0.036/£. 
B)  $0.037/£. 
C)  $0.004/£. 
D)  $1.54/£. 
A)  $0.036/£. 
B)  $0.037/£. 
C)  $0.004/£. 
D)  $1.54/£.

Question 5

The ________ of an option is the value if the option were to be exercised immediately.It is the option's ________ value.

Accepted Answer

A)  intrinsic value; maximum 
B)  intrinsic value; minimum 
C)  time value; maximum 
D)  time value; minimum 
A)  intrinsic value; maximum 
B)  intrinsic value; minimum 
C)  time value; maximum 
D)  time value; minimum

Question 6

Option volatility is defined as the square root of the standard deviation of daily percentage changes in the underlying exchange rate.

Accepted Answer

A) True 
 B)False

Question 7

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.What was the closing price of the British pound on April 18,2009?

Accepted Answer

A)  $1.448/£ 
B)  £1.448/$ 
C)  $14.48/£ 
D)  none of the above 
A)  $1.448/£ 
B)  £1.448/$ 
C)  $14.48/£ 
D)  none of the above

Question 8

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

Accepted Answer

A)  futures 
B)  forward 
C)  option 
D)  swap 
A)  futures 
B)  forward 
C)  option 
D)  swap

Question 9

Standard foreign currency options are priced around the forward rate.

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

Option premiums deteriorate at an/a __________ as they approach expiration.

Accepted Answer

A)  increasing rate 
B)  proportional 
C)  decreasing rate 
D)  less than proportional rate 
A)  increasing rate 
B)  proportional 
C)  decreasing rate 
D)  less than proportional rate

Question 12

A foreign currency ________ option gives the holder the right to ________ a foreign currency,whereas a foreign currency ________ option gives the holder the right to ________ an option.

Accepted Answer

A)  call, buy, put, sell 
B)  call, sell, put, buy 
C)  put, hold, call, release 
D)  none of the above 
A)  call, buy, put, sell 
B)  call, sell, put, buy 
C)  put, hold, call, release 
D)  none of the above

Question 13

The Theta of an option is defined as:

Accepted Answer

A)  expected change in the option premium for a small change in time to expiration. 
B)  expected change in the option premium for a small change in volatility. 
C)  expected change in the option premium for a small change in the spot rate. 
D)  expected change in the option premium for a small change in the domestic interest rate. 
A)  expected change in the option premium for a small change in time to expiration. 
B)  expected change in the option premium for a small change in volatility. 
C)  expected change in the option premium for a small change in the spot rate. 
D)  expected change in the option premium for a small change in the domestic interest rate.

Question 14

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

Accepted Answer

A)  collateralized deposit. 
B)  marked market sum. 
C)  margin. 
D)  settlement. 
A)  collateralized deposit. 
B)  marked market sum. 
C)  margin. 
D)  settlement.

Question 15

List and explain three "Greek" elements and impacts on a call option premium.

Accepted Answer

1)Delta: is the expected change in the o

Question 16

Currency futures contracts have become standard fare and trade readily in the world money centers.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  A futures contract is a standardized amount per currency whereas the forward contact is for any size desired. 
B)  A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year. 
C)  Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages. 
D)  All of the above are true. 
A)  A futures contract is a standardized amount per currency whereas the forward contact is for any size desired. 
B)  A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year. 
C)  Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages. 
D)  All of the above are true.

Question 18

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.

Accepted Answer

A)  buy yen; the forward rate 
B)  buy dollars; the forward rate 
C)  sell yen; the forward rate 
D)  There is not enough information to answer this question. 
A)  buy yen; the forward rate 
B)  buy dollars; the forward rate 
C)  sell yen; the forward rate 
D)  There is not enough information to answer this question.

Question 19

An option whose exercise price is equal to the spot rate is said to be:

Accepted Answer

A)  in-the-money. 
B)  at-the-money. 
C)  out-of-the-money. 
D)  on-the-spot. 
A)  in-the-money. 
B)  at-the-money. 
C)  out-of-the-money. 
D)  on-the-spot.

Question 20

Volatility is viewed the following ways EXCEPT:

Accepted Answer

A)  historic. 
B)  forward-looking. 
C)  implied. 
D)  spot. 
A)  historic. 
B)  forward-looking. 
C)  implied. 
D)  spot.

Historical volatility is the correct method for the calculation of the option volatility.

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.

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.

For a $1.50/£ call option with an initial premium of $0.033/£ and a lambda of 0.4,after an increase in annual volatility of 1 percent point - for example from 10% to 11% - the new optiom premium would be:

The of an option is the value if the option were to be exercised immediately.It is the option's value.

Option volatility is defined as the square root of the standard deviation of daily percentage changes in the underlying exchange rate.

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.What was the closing price of the British pound on April 18,2009?

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

Standard foreign currency options are priced around the forward rate.

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.

Option premiums deteriorate at an/a __________ as they approach expiration.

A foreign currency option gives the holder the right to a foreign currency,whereas a foreign currency option gives the holder the right to an option.

The Theta of an option is defined as:

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

List and explain three "Greek" elements and impacts on a call option premium.

Currency futures contracts have become standard fare and trade readily in the world money centers.

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

An option whose exercise price is equal to the spot rate is said to be:

Volatility is viewed the following ways EXCEPT:

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

Exam 7: Foreign Currency Derivatives: Futures and Options

Historical volatility is the correct method for the calculation of the option volatility.

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.

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.

For a $1.50/£ call option with an initial premium of $0.033/£ and a lambda of 0.4,after an increase in annual volatility of 1 percent point - for example from 10% to 11% - the new optiom premium would be:

The ________ of an option is the value if the option were to be exercised immediately.It is the option's ________ value.

Option volatility is defined as the square root of the standard deviation of daily percentage changes in the underlying exchange rate.

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.What was the closing price of the British pound on April 18,2009?

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

Standard foreign currency options are priced around the forward rate.

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.

Option premiums deteriorate at an/a __________ as they approach expiration.

A foreign currency ________ option gives the holder the right to ________ a foreign currency,whereas a foreign currency ________ option gives the holder the right to ________ an option.

The Theta of an option is defined as:

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

List and explain three "Greek" elements and impacts on a call option premium.

Currency futures contracts have become standard fare and trade readily in the world money centers.

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

An option whose exercise price is equal to the spot rate is said to be:

Volatility is viewed the following ways EXCEPT:

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

The of an option is the value if the option were to be exercised immediately.It is the option's value.

A foreign currency option gives the holder the right to a foreign currency,whereas a foreign currency option gives the holder the right to an option.