International Finance Exam #3
Questions with Verified Answers
Forward - ANSWERS- trading location: over-the-counter
- contract size: tailor made to the needs of the participant
- profit/loss is realized
- the risk is borne by buyer and seller of a forward contract
Futures - ANSWERS- an agreement that you promise to buy or to sell a currency
against the other at some future date at a future's price which is agreed upon today
- there is a clearing house
- trading location: organized exchanges, ex. Chicago Mercantile Exchange
- contract size: standardized
- delivery of the currency is seldom made, usually a trade will take a opposite position to
close out the original position
Delivery of forward - ANSWERScommonly made
Delivery of futures - ANSWERSseldom made
Call option - ANSWERS- gives the holder the right to buy the asset
Put option - ANSWERS- gives the holder the right to sell the asset
European trading style - ANSWERS- the option holder can only exercise the right at the
maturity date
American trading style - ANSWERS- the option holder can exercise the right anytime
during the contract period
At-the-money - ANSWERS- spot price=exercise price
- payoff =0
Out-of-the-money - ANSWERS- not going to exercise your option it is out-of-the-money
- payoff=0
In-the-money - ANSWERS- payoff is bigger than 0 then it is in-the-money
-
Intrinsic value - ANSWERS- the payoff if exercised at prevailing market price, value of
an asset
Option price has two parts - ANSWERS- Intrinsic value + time value
Questions with Verified Answers
Forward - ANSWERS- trading location: over-the-counter
- contract size: tailor made to the needs of the participant
- profit/loss is realized
- the risk is borne by buyer and seller of a forward contract
Futures - ANSWERS- an agreement that you promise to buy or to sell a currency
against the other at some future date at a future's price which is agreed upon today
- there is a clearing house
- trading location: organized exchanges, ex. Chicago Mercantile Exchange
- contract size: standardized
- delivery of the currency is seldom made, usually a trade will take a opposite position to
close out the original position
Delivery of forward - ANSWERScommonly made
Delivery of futures - ANSWERSseldom made
Call option - ANSWERS- gives the holder the right to buy the asset
Put option - ANSWERS- gives the holder the right to sell the asset
European trading style - ANSWERS- the option holder can only exercise the right at the
maturity date
American trading style - ANSWERS- the option holder can exercise the right anytime
during the contract period
At-the-money - ANSWERS- spot price=exercise price
- payoff =0
Out-of-the-money - ANSWERS- not going to exercise your option it is out-of-the-money
- payoff=0
In-the-money - ANSWERS- payoff is bigger than 0 then it is in-the-money
-
Intrinsic value - ANSWERS- the payoff if exercised at prevailing market price, value of
an asset
Option price has two parts - ANSWERS- Intrinsic value + time value
