INTERNATIONAL FINANCIAL
INTERNATIONAL FINANCIAL MANAGEMENT EXAM 2 QUESTIONS AND ANSWERS
GRADED A+!!
Which of the following best describes currency options sold through an options
exchange? They grant the buyer a right answer >>>>>>But not the obligation, to
buy or sell and are standardized.
Forward contracts contain: answer >>>>>>A commitment to the owner, and can
be tailored to the desire of the owner.
If your firm expects the euro to substantially depreciate, it could speculate by
_______ euro call options or _______euros forward in the forward exchange
market. answer >>>>>>Selling; selling
When you purchase ________, there is no obligation on your part; however,
when you purchase ________, there is an obligation on your part. answer
>>>>>>Put options; forward contracts
The greater the variability of a currency, the ________ will be the premium of a
call option on this currency, and the ________ will be the premium of a put
option on this currency, other things equal. answer >>>>>>Greater; greater
The shorter the time to the expiration date for a currency, the ________ will be
the
premium of a call option, and the ________ will be the premium of a put option,
other things equal. answer >>>>>>lower, lower
,INTERNATIONAL FINANCIAL
Assume that a speculator purchases a put option on British pounds (with a strike
price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume
that at the time of the purchase, the spot rate of the pound is $1.51 and
continually rises to $1.62 by the expiration date. The highest net profit possible
on the option for the speculator based on the information above is: answer
>>>>>>-$1,562
Which of the following is true? answer >>>>>>The futures market is primarily
used by speculators while the forward market is primarily used for hedging.
If you expect the euro to depreciate, it would be appropriate to ________ for
speculative purposes. answer >>>>>>Sell a euro call and buy a euro put
If you expect the British pound to appreciate, you could speculate by ________
pound call options or ________ pound put options. answer >>>>>>Purchasing;
selling
Which of the following is correct about a currency option, other things equal?
answer >>>>>>a. The lower the exercises price relative to the spot rate, the
greater the value of a call option.
Assume no transactions costs exist for any futures or forward contracts. The price
of British pound futures with a settlement date 180 days from now will: answer
>>>>>>Be about the same as the 180-day forward rate.
A firm sells a currency futures contract and then decides before the settlement
date that it no longer wants to maintain such a position. It can close out its
position by: answer >>>>>>Buying an identical futures contract.
, INTERNATIONAL FINANCIAL
If the spot rate of the euro increased substantially over a one-month period, the
futures price on euros would likely ____________over that same period. answer
>>>>>>Increase substantially
A U.S. firm is bidding for a project needed by the Swiss government. The firm will
not know if the bid is accepted until three months from now. The firm will need
Swiss francs to cover expenses but will be paid by the Swiss government in dollars
if it is hired for the project. The firm can best insulate itself against exchange rate
exposure by: answer >>>>>>Buying franc call options.
The premium on a pound put option is $.03 per unit. The exercise price is $1.60.
The break-even point is ________ for the buyer of the put, and ________ for the
seller of the put. (Assume zero transactions costs and that the buyer and seller of
the put option are speculators.) answer >>>>>>$1.57; $1.57
You purchase a call option on pounds for a premium of $.03 per unit, with an
exercise price of $1.64; the option will not be exercised until the expiration date,
if at all. If the spot rate on the expiration date is $1.65, your net profit per unit is:
answer >>>>>>-$.02
You purchase a put option on Swiss francs for a premium of $.02, with an exercise
price of $.61. The option will not be exercised until the expiration date, if at all. If
the spot rate on the expiration date is $.58, your net profit per unit is: answer
>>>>>>None of the above.
You are a speculator who sells a call option on Swiss francs for a premium of $.06,
with an exercise price of $.64. The option will not be exercised until the expiration
date, if at all. The spot rate of the Swiss franc is $.69 on the expiration date, your
net profit per unit is: answer >>>>>>$.01
INTERNATIONAL FINANCIAL MANAGEMENT EXAM 2 QUESTIONS AND ANSWERS
GRADED A+!!
Which of the following best describes currency options sold through an options
exchange? They grant the buyer a right answer >>>>>>But not the obligation, to
buy or sell and are standardized.
Forward contracts contain: answer >>>>>>A commitment to the owner, and can
be tailored to the desire of the owner.
If your firm expects the euro to substantially depreciate, it could speculate by
_______ euro call options or _______euros forward in the forward exchange
market. answer >>>>>>Selling; selling
When you purchase ________, there is no obligation on your part; however,
when you purchase ________, there is an obligation on your part. answer
>>>>>>Put options; forward contracts
The greater the variability of a currency, the ________ will be the premium of a
call option on this currency, and the ________ will be the premium of a put
option on this currency, other things equal. answer >>>>>>Greater; greater
The shorter the time to the expiration date for a currency, the ________ will be
the
premium of a call option, and the ________ will be the premium of a put option,
other things equal. answer >>>>>>lower, lower
,INTERNATIONAL FINANCIAL
Assume that a speculator purchases a put option on British pounds (with a strike
price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume
that at the time of the purchase, the spot rate of the pound is $1.51 and
continually rises to $1.62 by the expiration date. The highest net profit possible
on the option for the speculator based on the information above is: answer
>>>>>>-$1,562
Which of the following is true? answer >>>>>>The futures market is primarily
used by speculators while the forward market is primarily used for hedging.
If you expect the euro to depreciate, it would be appropriate to ________ for
speculative purposes. answer >>>>>>Sell a euro call and buy a euro put
If you expect the British pound to appreciate, you could speculate by ________
pound call options or ________ pound put options. answer >>>>>>Purchasing;
selling
Which of the following is correct about a currency option, other things equal?
answer >>>>>>a. The lower the exercises price relative to the spot rate, the
greater the value of a call option.
Assume no transactions costs exist for any futures or forward contracts. The price
of British pound futures with a settlement date 180 days from now will: answer
>>>>>>Be about the same as the 180-day forward rate.
A firm sells a currency futures contract and then decides before the settlement
date that it no longer wants to maintain such a position. It can close out its
position by: answer >>>>>>Buying an identical futures contract.
, INTERNATIONAL FINANCIAL
If the spot rate of the euro increased substantially over a one-month period, the
futures price on euros would likely ____________over that same period. answer
>>>>>>Increase substantially
A U.S. firm is bidding for a project needed by the Swiss government. The firm will
not know if the bid is accepted until three months from now. The firm will need
Swiss francs to cover expenses but will be paid by the Swiss government in dollars
if it is hired for the project. The firm can best insulate itself against exchange rate
exposure by: answer >>>>>>Buying franc call options.
The premium on a pound put option is $.03 per unit. The exercise price is $1.60.
The break-even point is ________ for the buyer of the put, and ________ for the
seller of the put. (Assume zero transactions costs and that the buyer and seller of
the put option are speculators.) answer >>>>>>$1.57; $1.57
You purchase a call option on pounds for a premium of $.03 per unit, with an
exercise price of $1.64; the option will not be exercised until the expiration date,
if at all. If the spot rate on the expiration date is $1.65, your net profit per unit is:
answer >>>>>>-$.02
You purchase a put option on Swiss francs for a premium of $.02, with an exercise
price of $.61. The option will not be exercised until the expiration date, if at all. If
the spot rate on the expiration date is $.58, your net profit per unit is: answer
>>>>>>None of the above.
You are a speculator who sells a call option on Swiss francs for a premium of $.06,
with an exercise price of $.64. The option will not be exercised until the expiration
date, if at all. The spot rate of the Swiss franc is $.69 on the expiration date, your
net profit per unit is: answer >>>>>>$.01
