FIN582 Exam Questions with Correct Answers

FIN582 Exam Questions with Correct Answers A Mexican firm issues €-denominated bond to investors in Europe. These bonds would be classified as Eurobonds. true or false - Answer-false Dealers in the interbank market make money by buying currencies at a bid price that is lower than the ask price at which they sell currencies true or false - Answer-true A U.S. importer hedges by buying a futures contract on the €. The contract is for €100,000 at a price of $1.25/€. If the futures price rises over time the profit on the futures contract will allow the importer to ultimately pay less than $125,000 for the euros. true or false - Answer-false Because goods and services are priced in many different currencies, a foreign exchange market is needed in order for people to obtain purchasing power denominated in a variety of currencies. true or false - Answer-true When hedging with options, the option premium paid reduces the total amount paid when you buy a currency and adds to the total amount received when you sell a currency. true or false - Answer-false A firm with a future foreign currency payable faces the risk of the foreign currency _________________ between now and when the firm pays it. A. Devaluing B. Appreciating C. Depreciating D. Hedging dollars - Answer-B. Appreciating If a dealer has a $1.22/€ bid and a $1.23/€ ask price, what is the bid-ask spread? A. 1.0% B. .81% C. .82% D. .01% - Answer-B. .81