FIN 4213 EXAM 2 QUESTIONS AND ANSWERS
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, what is your net profit per unit? - CORRECT ANSWER✅✅Net profit per unit = $.61 - $.58 - $.02 =
$.01.
A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$)
receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time
of maturity is $.72, what is the net dollar amount received by the corporation if it acts rationally? -
CORRECT ANSWER✅✅Dollars received from selling Canadian dollars at the exercise price = C$100,000 ×
$.75/C$ = $75,000.
The premium on a euro call option is $.01. The exercise price is $1.25. What are the break-even points
for the buyer of the call and for the seller of the call? - CORRECT ANSWER✅✅Net dollar amount
received =Amount of dollars received- premium = $75,000 - $1,000 = $74,000. Break-even point on call
option to both the buyer and seller is $1.25 + $.01 = $1.26.
Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66. What is the
forward rate discount or premium? - CORRECT ANSWER✅✅Forward Premium = (Forward rate - Spot
rate)/Spot rate = ($.66 - $.62)/$.62 = 6.45%
The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is
the annualized forward premium or discount of the euro? - CORRECT ANSWER✅✅Annualized forward
premium = [(F-S)/S] × 360/180 = [($1.34-$1.29)/$1.29] × 360/180 = 7.75%
The spot rate for the Singapore dollar is $.588. The 30-day forward rate is $.590. What is the annualized
forward rate discount or premium? - CORRECT ANSWER✅✅Annualized forward premium = ($.59 -
$.588)/$.588 × (360/30) = 4.08%
A call option on British pounds has a strike (exercise) price of $1.45. The present exchange rate is $1.50.
This call option can be referred to as:
a. in the money.
b. out of the money.
c. at the money.
, d. at a discount. - CORRECT ANSWER✅✅A
A put option on British pounds has a strike (exercise) price of $1.45. The present exchange rate is $1.50.
This put option can be referred to as:
a. in the money.
b. out of the money.
c. at the money.
d. at a discount. - CORRECT ANSWER✅✅B
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.
a. greater; greater
b. greater; lower
c. lower; lower
d. lower; greater - CORRECT ANSWER✅✅C
If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.
a. buy a euro call or buy a euro put
b. buy a euro call or sell a euro put
c. sell a euro call or sell a euro put
d. sell a euro call or buy a euro put - CORRECT ANSWER✅✅D
The premium on a pound put option is $.02 per unit. The exercise price is $1.50. The break-even point is
____ for the buyer of the put, and ____ for the seller of the put.
a. $1.52; $1.52
b. $1.48; $1.48
c. $1.52; $1.48
d. $1.48; $1.52
e. $1.48; $1.50 - CORRECT ANSWER✅✅B
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, what is your net profit per unit? - CORRECT ANSWER✅✅Net profit per unit = $.61 - $.58 - $.02 =
$.01.
A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$)
receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time
of maturity is $.72, what is the net dollar amount received by the corporation if it acts rationally? -
CORRECT ANSWER✅✅Dollars received from selling Canadian dollars at the exercise price = C$100,000 ×
$.75/C$ = $75,000.
The premium on a euro call option is $.01. The exercise price is $1.25. What are the break-even points
for the buyer of the call and for the seller of the call? - CORRECT ANSWER✅✅Net dollar amount
received =Amount of dollars received- premium = $75,000 - $1,000 = $74,000. Break-even point on call
option to both the buyer and seller is $1.25 + $.01 = $1.26.
Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66. What is the
forward rate discount or premium? - CORRECT ANSWER✅✅Forward Premium = (Forward rate - Spot
rate)/Spot rate = ($.66 - $.62)/$.62 = 6.45%
The 180-day forward rate for the euro is $1.34, while the current spot rate of the euro is $1.29. What is
the annualized forward premium or discount of the euro? - CORRECT ANSWER✅✅Annualized forward
premium = [(F-S)/S] × 360/180 = [($1.34-$1.29)/$1.29] × 360/180 = 7.75%
The spot rate for the Singapore dollar is $.588. The 30-day forward rate is $.590. What is the annualized
forward rate discount or premium? - CORRECT ANSWER✅✅Annualized forward premium = ($.59 -
$.588)/$.588 × (360/30) = 4.08%
A call option on British pounds has a strike (exercise) price of $1.45. The present exchange rate is $1.50.
This call option can be referred to as:
a. in the money.
b. out of the money.
c. at the money.
, d. at a discount. - CORRECT ANSWER✅✅A
A put option on British pounds has a strike (exercise) price of $1.45. The present exchange rate is $1.50.
This put option can be referred to as:
a. in the money.
b. out of the money.
c. at the money.
d. at a discount. - CORRECT ANSWER✅✅B
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.
a. greater; greater
b. greater; lower
c. lower; lower
d. lower; greater - CORRECT ANSWER✅✅C
If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.
a. buy a euro call or buy a euro put
b. buy a euro call or sell a euro put
c. sell a euro call or sell a euro put
d. sell a euro call or buy a euro put - CORRECT ANSWER✅✅D
The premium on a pound put option is $.02 per unit. The exercise price is $1.50. The break-even point is
____ for the buyer of the put, and ____ for the seller of the put.
a. $1.52; $1.52
b. $1.48; $1.48
c. $1.52; $1.48
d. $1.48; $1.52
e. $1.48; $1.50 - CORRECT ANSWER✅✅B
