FIN 4213 EXAM 2 QUESTIONS WITH
ACCURATE 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? - 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? - 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? -
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
$.66. What is the forward rate discount or premium? - ANSWER Forward
Premium = (Forward rate - Spot rate)/Spot rate = ($.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? -
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 $.590.
What is the annualized forward rate discount or premium? - ANSWER
Annualized forward premium = ($.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. - 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. - 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 - 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 - 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 - ANSWER B
J&L Co. is a U.S.-based MNC that frequently exports computers to Italy. J&L
typically invoices these goods in euros and is concerned that the euro will
depreciate in the near future. Which of the following is not an appropriate
technique under these circumstances?
a. purchase euro put options.
b. sell euros forward.
c. sell euro futures contracts.
d. sell euro put options. - ANSWER D
The forward rate of a foreign currency forward contract is typically ____ the
current spot rate of the currency.
a. higher than
b. the same as
c. lower than
d. different from - ANSWER D
ACCURATE 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? - 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? - 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? -
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
$.66. What is the forward rate discount or premium? - ANSWER Forward
Premium = (Forward rate - Spot rate)/Spot rate = ($.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? -
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 $.590.
What is the annualized forward rate discount or premium? - ANSWER
Annualized forward premium = ($.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. - 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. - 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 - 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 - 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 - ANSWER B
J&L Co. is a U.S.-based MNC that frequently exports computers to Italy. J&L
typically invoices these goods in euros and is concerned that the euro will
depreciate in the near future. Which of the following is not an appropriate
technique under these circumstances?
a. purchase euro put options.
b. sell euros forward.
c. sell euro futures contracts.
d. sell euro put options. - ANSWER D
The forward rate of a foreign currency forward contract is typically ____ the
current spot rate of the currency.
a. higher than
b. the same as
c. lower than
d. different from - ANSWER D
