FIN 6420 CH 5 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
Graylon, Inc, based in Washington, exports products to a German firm and
will receive payment of $200,000 in three months. On June 1, the spot rate of
the euro was $1.12, and the 3-month forward rate was $1.10. On June 1,
Graylon negotiated a forward contract with a bank to sell $100,000 forward in
three months. the spot rate of the euro on September 1 is $1.15. Graylon will
receive ____ for the euros.
a. 220,000
b. 230,000
c. 200,000
d. 224,000
Answer:
$220,000
Question:
As mentioned in the text, the most common maturities for forward rates are:
a. 30, 60, 90, 180, and 360 days
b. one, three, six, and twelve years
c. 5, 30, and 360 days
d. two, three, and five weeks
Answer:
30, 60, 90, 180, and 360 days
Question:
A speculator in futures contacts who expects the value of a foreign currency to
depreciate would likely sell futures contracts. T/F?
Answer:
TRUE
Question:
Assume that the British pound futures price for September is $1.60. Given that
62,500 units are in a British pound futures contract, the seller of British pound
futures will receive ____ on the delivery date
a. 39,062.5
b. 100,000.00
c. 48,000
d. 87,062.5
Answer:
$100,000
Question:
Forward contracts contain
a. a commitment to the owner, and are standardized
b. a commitment to the owner, and can be tailored to the owner's desire
c. a right but not a commitment to the owner, and can be tailored to the
, owner's desire
d. a right but not a commitment to the owner, and are standardized
Answer:
A commitment to the owner, and can be tailored to the owner's desire
Question:
The one-year forward rate of the British pound is quoted at $1.60, and the spot
rate of the British pound is quoted at $1.63. The forward ____ is ____ percent
a. premium; 1.9
b. premium; 1.8
c. discount; 1.9
d. discount; 1.8
Answer:
Discount; 1.8
Question:
Which of the following is true for futures, but not for forwards?
a. Actual Delivery
b. No transaction costs
c. Self-regulating market
d. None of these are correct
Answer:
None of these are correct
Question:
Which of the following is NOT true regarding futures contracts?
a. unlike forward contracts, they are generally traded on an exchange
b. futures contracts are standardized with respect to delivery date and size of
the contract
c. there is an active over-the-counter market for currency futures contracts
d. currency futures can be used by speculators who attempt to profit from
exchange rate movements
Answer:
There is an active over-the-counter market
for currency futures contracts
Question:
The spot rate of the euro is quoted at $1.29. the annualized forward premium
on the euro is 10 %. What is the 30-day forward rate of the euro?
a. $1.30
b. $1.42
c. $1.28
d. $1.16
Answer:
$1.30
Question:
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 being equal.
a. greater; greater
CORRECT ANSWERS
Question:
Graylon, Inc, based in Washington, exports products to a German firm and
will receive payment of $200,000 in three months. On June 1, the spot rate of
the euro was $1.12, and the 3-month forward rate was $1.10. On June 1,
Graylon negotiated a forward contract with a bank to sell $100,000 forward in
three months. the spot rate of the euro on September 1 is $1.15. Graylon will
receive ____ for the euros.
a. 220,000
b. 230,000
c. 200,000
d. 224,000
Answer:
$220,000
Question:
As mentioned in the text, the most common maturities for forward rates are:
a. 30, 60, 90, 180, and 360 days
b. one, three, six, and twelve years
c. 5, 30, and 360 days
d. two, three, and five weeks
Answer:
30, 60, 90, 180, and 360 days
Question:
A speculator in futures contacts who expects the value of a foreign currency to
depreciate would likely sell futures contracts. T/F?
Answer:
TRUE
Question:
Assume that the British pound futures price for September is $1.60. Given that
62,500 units are in a British pound futures contract, the seller of British pound
futures will receive ____ on the delivery date
a. 39,062.5
b. 100,000.00
c. 48,000
d. 87,062.5
Answer:
$100,000
Question:
Forward contracts contain
a. a commitment to the owner, and are standardized
b. a commitment to the owner, and can be tailored to the owner's desire
c. a right but not a commitment to the owner, and can be tailored to the
, owner's desire
d. a right but not a commitment to the owner, and are standardized
Answer:
A commitment to the owner, and can be tailored to the owner's desire
Question:
The one-year forward rate of the British pound is quoted at $1.60, and the spot
rate of the British pound is quoted at $1.63. The forward ____ is ____ percent
a. premium; 1.9
b. premium; 1.8
c. discount; 1.9
d. discount; 1.8
Answer:
Discount; 1.8
Question:
Which of the following is true for futures, but not for forwards?
a. Actual Delivery
b. No transaction costs
c. Self-regulating market
d. None of these are correct
Answer:
None of these are correct
Question:
Which of the following is NOT true regarding futures contracts?
a. unlike forward contracts, they are generally traded on an exchange
b. futures contracts are standardized with respect to delivery date and size of
the contract
c. there is an active over-the-counter market for currency futures contracts
d. currency futures can be used by speculators who attempt to profit from
exchange rate movements
Answer:
There is an active over-the-counter market
for currency futures contracts
Question:
The spot rate of the euro is quoted at $1.29. the annualized forward premium
on the euro is 10 %. What is the 30-day forward rate of the euro?
a. $1.30
b. $1.42
c. $1.28
d. $1.16
Answer:
$1.30
Question:
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 being equal.
a. greater; greater
