Question 1

Due to arbitrage,the futures price at maturity ________.

Accepted Answer

A)  is driven to equality with the spot rate on that date 
B)  remains the same as the price of the opening trade for the date 
C)  represents the last trading price 
D)  represents the average price of the open interest outstanding 
A)  is driven to equality with the spot rate on that date 
B)  remains the same as the price of the opening trade for the date 
C)  represents the last trading price 
D)  represents the average price of the open interest outstanding A

Question 2

What are the differences between foreign currency option contracts and forward contracts for foreign currency?

Accepted Answer

The primary difference between a foreign currency option contract and a forward contract is that the option contract gives the purchaser of the option,the right,but not the obligation to transact.If the state of the world in the future is favorable to the purchasers of the option,they will transact.If the state of the world is unfavorable,the option is worthless.Forward contracts are completely uncontingent on the state of the world in the future.

Question 3

What effects does "marking to market" have on futures contracts?

Accepted Answer

The process of marking to market implies that futures contracts have daily cash flows associated with them.One can be either long (having bought the contract)or short (having sold the contract)in the futures market at a particular price.Since both sides are treated symmetrically,let's assume you are long.You must 	post funds in a margin account,and if on subsequent days,the futures price moves in your favor,that is,the foreign currency futures prices rises as the foreign currency strengthens; funds are placed into your margin account and are taken out of the margin accounts of those who sold the foreign currency futures contract.This process continues every day until the maturity date of the contract.

Question 4

Unlike forward contracts,the size of currency futures contracts are ________.

Accepted Answer

A)  subject to the forces of supply and demand in the currency spot market 
B)  based on the months in which they expire 
C)  a function of the initial margin required at the open of the trade 
D)  a standardized amount that differs for each currency traded 
A)  subject to the forces of supply and demand in the currency spot market 
B)  based on the months in which they expire 
C)  a function of the initial margin required at the open of the trade 
D)  a standardized amount that differs for each currency traded

Question 5

The hedging contract that gives the buyer the right,but not the obligation,to buy a specific amount of foreign currency with domestic currency is known as the ________.

Accepted Answer

A)  call option 
B)  put option 
C)  American option 
D)  European option 
A)  call option 
B)  put option 
C)  American option 
D)  European option

Question 6

Marking to market is the process by which the clearing house of an exchange ________.

Accepted Answer

A)  debits and credits the losses and profits to the margin accounts from the daily price changes of futures prices; closes the contract, and opens a new one at the new price 
B)  forces the investor to go long the currency 
C)  allows the market forces to affect daily prices until the expiration date 
D)  closes the old contract and sets the price of a new contract a zero 
A)  debits and credits the losses and profits to the margin accounts from the daily price changes of futures prices; closes the contract, and opens a new one at the new price 
B)  forces the investor to go long the currency 
C)  allows the market forces to affect daily prices until the expiration date 
D)  closes the old contract and sets the price of a new contract a zero

Question 7

The exchange rate in an option contract is called the option's ________.

Accepted Answer

A)  premium 
B)  discount 
C)  strike price 
D)  delivery price 
A)  premium 
B)  discount 
C)  strike price 
D)  delivery price

Question 8

When the value of the futures contract margin account falls below the maintenance margin,________.

Accepted Answer

A)  no action is necessary by the investor 
B)  there is a margin call 
C)  there is a margin call at which point the account must be brought back up to the maintenance margin amount 
D)  no money changes hands again until the expiration date 
A)  no action is necessary by the investor 
B)  there is a margin call 
C)  there is a margin call at which point the account must be brought back up to the maintenance margin amount 
D)  no money changes hands again until the expiration date

Question 9

________ is a daily settlement feature of the currency futures exchange in which profits and losses are paid over every day at the end of trading.

Accepted Answer

A)  Open interest 
B)  A margin call 
C)  Marking to market 
D)  A maintenance margin 
A)  Open interest 
B)  A margin call 
C)  Marking to market 
D)  A maintenance margin

Question 10

Suppose the current spot rate for the pound is $01.7427.A put option with an exercise price of $01.7550 is said to be

Accepted Answer

A)  in-the-money. 
B)  out-of-the-money. 
C)  at-the-money. 
D)  past breakeven. 
A)  in-the-money. 
B)  out-of-the-money. 
C)  at-the-money. 
D)  past breakeven.

Question 11

Which of the following conditions would be "in the money" for an American call option for foreign currency?

Accepted Answer

A)  when the market price limits are reached and trading is halted 
B)  when the strike price is greater than the spot price 
C)  when the strike price is equal to the spot price 
D)  when the strike price is lower than the spot price 
A)  when the market price limits are reached and trading is halted 
B)  when the strike price is greater than the spot price 
C)  when the strike price is equal to the spot price 
D)  when the strike price is lower than the spot price

Question 12

The ________ is the minimum amount that must be kept in the futures margin account to guard against severe volatility in the futures contract price.

Accepted Answer

A)  initial margin 
B)  settle price 
C)  maintenance margin 
D)  open interest 
A)  initial margin 
B)  settle price 
C)  maintenance margin 
D)  open interest

Question 13

What does it mean for an American option to be "in the money"?

Accepted Answer

If an American option is "in the money,"

Question 14

Which one of the following is an example of a currency futures exchange?

Accepted Answer

A)  The Chicago Board of Trade 
B)  The New York Stock Exchange 
C)  The International Monetary Market 
D)  The Tokyo Stock Exchange 
A)  The Chicago Board of Trade 
B)  The New York Stock Exchange 
C)  The International Monetary Market 
D)  The Tokyo Stock Exchange

Question 15

A major difference between foreign currency futures contracts and forward contracts is that forward contracts are ________.

Accepted Answer

A)  sold by government agencies 
B)  created by banks 
C)  created by writers 
D)  marketed on the over-the-counter market 
A)  sold by government agencies 
B)  created by banks 
C)  created by writers 
D)  marketed on the over-the-counter market

Question 16

The difference between the current spot price and the futures price is known as the

Accepted Answer

A)  spread. 
B)  barrier. 
C)  basis. 
D)  open interest. 
A)  spread. 
B)  barrier. 
C)  basis. 
D)  open interest.

Question 17

What is the term for the revenue immediately generated from exercising a currency option?

Accepted Answer

A)  open interest 
B)  leading payment 
C)  margin 
D)  intrinsic value 
A)  open interest 
B)  leading payment 
C)  margin 
D)  intrinsic value

Question 18

Unlike forward contracts,the maturity dates in the futures market are ________.

Accepted Answer

A)  limited to four dates during the year 
B)  based on the first business day of each month 
C)  unlimited since futures contracts may be terminated anytime 
D)  limited to only regular business days rather than calendar days 
A)  limited to four dates during the year 
B)  based on the first business day of each month 
C)  unlimited since futures contracts may be terminated anytime 
D)  limited to only regular business days rather than calendar days

Question 19

The original or first seller of the option is known as the ________.

Accepted Answer

A)  option broker 
B)  writer 
C)  option commission merchant 
D)  clearing member 
A)  option broker 
B)  writer 
C)  option commission merchant 
D)  clearing member

Question 20

Suppose that XYZ International Company has purchased a Swiss francs futures contract (contact size is SFr 125,000)at a price of $0.8250 at $0.83.If the spot rate for the Swiss franc at the date of settlement is SFr = $0.8250,what is the Company's gain or loss on the contract?

Accepted Answer

XYZ has bought Swiss francs wo

Exam 20: Foreign Currency Futures and Options

Due to arbitrage,the futures price at maturity ________.

What are the differences between foreign currency option contracts and forward contracts for foreign currency?

What effects does "marking to market" have on futures contracts?

Unlike forward contracts,the size of currency futures contracts are ________.

The hedging contract that gives the buyer the right,but not the obligation,to buy a specific amount of foreign currency with domestic currency is known as the ________.

Marking to market is the process by which the clearing house of an exchange ________.

The exchange rate in an option contract is called the option's ________.

When the value of the futures contract margin account falls below the maintenance margin,________.

________ is a daily settlement feature of the currency futures exchange in which profits and losses are paid over every day at the end of trading.

Suppose the current spot rate for the pound is $01.7427.A put option with an exercise price of $01.7550 is said to be

Which of the following conditions would be "in the money" for an American call option for foreign currency?

The ________ is the minimum amount that must be kept in the futures margin account to guard against severe volatility in the futures contract price.

What does it mean for an American option to be "in the money"?

Which one of the following is an example of a currency futures exchange?

A major difference between foreign currency futures contracts and forward contracts is that forward contracts are ________.

The difference between the current spot price and the futures price is known as the

What is the term for the revenue immediately generated from exercising a currency option?

Unlike forward contracts,the maturity dates in the futures market are ________.

The original or first seller of the option is known as the ________.

Suppose that XYZ International Company has purchased a Swiss francs futures contract (contact size is SFr 125,000)at a price of $0.8250 at $0.83.If the spot rate for the Swiss franc at the date of settlement is SFr = $0.8250,what is the Company's gain or loss on the contract?

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Speculation and Risk in the Foreign Exchange Market

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Risk Management and the Foreign Currency Hedging Decision

Financing International Trade

Managing Net Working Capital

Interest Rates and Foreign Currency Swaps

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