Question 1

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

Accepted Answer

A) size of the contract 
B) maturity date 
C) last trading day 
D) All of the above are specified.

Question 2

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 ________.

Accepted Answer

A) $100,000;unlimited 
B) unlimited;unlimited 
C) $100,000;$100,000 
D) unlimited;$100,000

Question 3

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.

Question 4

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?

Accepted Answer

A) ¥100/$ 
B) ¥105/$ 
C) ¥110/$ 
D) ¥115/$

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

Question 6

The value of a European style call option is the sum of two components:

Accepted Answer

A) the present value plus the intrinsic value. 
B) the time value plus the present value. 
C) the intrinsic value plus the time value. 
D) the intrinsic value plus the standard deviation.

Question 7

Which of the following is NOT a difference between a currency futures contract and a forward contract?

Accepted Answer

A) The futures contract is marked to market daily,whereas the forward contract is only due to be settled at maturity. 
B) The counterparty to the futures participant is unknown with the clearinghouse stepping into each transaction,whereas the forward contract participants are in direct contact setting the forward specifications. 
C) A single sales commission covers both the purchase and sale of a futures contract,whereas there is no specific sales commission with a forward contract because banks earn a profit through the bid-ask spread. 
D) All of the above are true.

Question 8

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 option premium would be:

Accepted Answer

A) $0.035/£. 
B) $1.48/£. 
C) $0.031/£. 
D) $0.032/£.

Question 9

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 ________.

Accepted Answer

A) buying yen for ¥128.00/$;selling yen at ¥128.53/$ 
B) buying yen for ¥128.53/$;selling yen at ¥128.00/$ 
C) There is not enough information to answer this question. 
D) He could not profit in the forward market.

Question 10

Foreign currency options are available both over-the-counter and on organized exchanges.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

The value of any option that is currently in-the-money (ITM)is made up entirely of time value.

Accepted Answer

A) True 
 B)False

Question 13

An ________ option can be exercised only on its expiration date,whereas a/an ________ option can be exercised anytime between the date of writing up to and including the exercise date.

Accepted Answer

A) American;European 
B) American;British 
C) Asian;American 
D) European;American

Question 14

A trader who is buying options of longer maturities will pay more,and proportionately more,for the longer maturity options.

Accepted Answer

A) True 
 B)False

Question 15

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:

Accepted Answer

A) $146.09. 
B) $101,460.94. 
C) $1460.94. 
D) nothing;he will lose money

Question 16

Which of the following is NOT a factor in determining the premium price of a currency option?

Accepted Answer

A) the present spot rate 
B) the time to maturity 
C) the standard deviation of the daily spot price movement 
D) All of the above are factors in determining the premium price.

Question 17

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

Accepted Answer

A) The maximum loss is unlimited. 
B) The maximum gain is unlimited. 
C) The gain or loss is equal to but of the opposite sign of the buyer of a call option. 
D) All of the above are true.

Question 18

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.

Question 19

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:

Accepted Answer

A) $0.043/£. 
B) $0.038/£. 
C) $0.005/£. 
D) $1.715/£.

Question 20

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).

Accepted Answer

A) True 
 B)False

Exam 7: Foreign Currency Derivatives: Futures and Options

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

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

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?

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

The value of a European style call option is the sum of two components:

Which of the following is NOT a difference between a currency futures contract and a forward contract?

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 option premium would be:

Foreign currency options are available both over-the-counter and on organized exchanges.

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?

The value of any option that is currently in-the-money (ITM)is made up entirely of time value.

An option can be exercised only on its expiration date,whereas a/an option can be exercised anytime between the date of writing up to and including the exercise date.

A trader who is buying options of longer maturities will pay more,and proportionately more,for the longer maturity options.

Which of the following is NOT a factor in determining the premium price of a currency option?

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

The Theta of an option is defined as:

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:

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).