Chapter 5 Currency Derivatives
1. Kalons, Inc. is a MNC that frequently imports raw materials from Canada.
Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances
A) purchase Canadian dollars forward.
B) purchase Canadian dollar futures contracts.
C) purchase Canadian dollar put options.
D) purchase Canadian dollar call options.
ANSWER: C
2. Graylon, Inc., based in Washington, exports products to a German firm and will receive payment of €200,000 in three months. On June1, the spot rate of the euro was $, and the 3-month forward rate was $. On June 1, Graylon negotiated a forward contract with a bank to sell €200,000 forward in three spot rate of the euroon September 1 is $. Graylon will receive $_________ for the euros.
A) 224,000
B) 220,000
C) 200,000
D) 230,000
ANSWER: B
SOLUTION: €200,000 x $ = $220,000
3. The one-year forward rate of the British pound is quoted at $, and the spot rate of
the British pound is quoted at $. The forward ________ is _______ percent.
A) discount;
B) discount;
C) premium;
D) premium;
p = F–S
S
ANSWER: B
SOLUTION: (F/S) – 1 = ($$ – 1 = percent.
4. The 90-day forward rate for the euro is $, while the current spot rate of the euro is
$. What is the annualized forward premium or discount of the euro
A) percent discount.
B) percent premium.
C) percent premium.
D) percent discount.
ANSWER: C
p = F–S360
S n
SOLUTION: [(F/S) – 1] x 360/90 = percent.
5. Thornton, Inc. needs to invest five million Nepalese rupees in its Nepalese subsidiary to support local operations. Thornton would like its subsidiary to repay the rupees in one year. Thornton would like to engage in a swap transaction. Thus, Thornton would:
A) convert the rupees to dollars in the spot market today and convert rupees to dollars
in one year at today's forward rate.
B) convert the dollars to rupees in the spot market today and convert dollars to rupees in one year at the prevailing spot rate.
C) convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at today's forward rate.
D) convert the dollars to rupees in the spot market today and convert rupees to dollars
in one year at the prevailing spot rate.
ANSWER: C
6. In the U.S., the typical currency futures contract is based on a currency value in terms of:
A) euros.
B) . dollars.
C) British pounds.
D) Canadian dollars.
ANSWER: B
7. Currency futures contracts sold on an exchange:
A) contain a commitment to the owner, and are standardized.
B) contain a commitment to the owner, and can be tailored to the desire of the owner.
C) contain a right but not a commitment to the owner, and can be tailored to the desire of the owner.
D) contain a right but not a commitment to the owner, and are standardized. ANSWER: A
8. Currency options sold through an options exchange:
A) contain a commitment to the owner, and are standardized.
B) contain a commitment to the owner, and can be tailored to the desire of the owner.
C) contain a right but not a commitment to the owner, and can be tailored to the desire of
the owner.
D) contain a right but not a commitment to the owner, and are standardized.
ANSWER: D
9. Currency options are traded through the GLOBEX system at the:
A) Chicago Board Options Exchange when the trading floor is open.
B) Chicago Mercantile Exchange when the trading floor is open.
C) Chicago Mercantile Exchange even after the trading floor is closed.
D) Philadelphia Exchange even after the trading floor is closed.
E) Chicago Board Options Exchange even after the trading floor is closed.
ANSWER: C
10. Forward contracts:
A) contain a commitment to the owner, and are standardized.
B) contain a commitment to the owner, and can be tailored to the desire of the owner.
C) contain a right but not a commitment to the owner, and can be tailored to the desire of the owner.
D) contain a right but not a commitment to the owner, and are standardized.
ANSWER: B
11. Which of the following is the most likely strategy for a U.S. firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)
A) purchase a call option on francs.
B) sell a futures contract on francs.
C) obtain a forward contract to purchase francs forward.
D) all of the above are appropriate strategies for the scenario described.
ANSWER: B
12. Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)
A) purchase a call option on francs.
B) obtain a forward contract to purchase francs forward.
C) sell a futures contract on francs.
D) all of the above are appropriate strategies for the scenario described.
ANSWER: C
13. If your firm expects the euro to substantially depreciate, it could speculate by _______ euro call options(看涨期权) or _______ euros forward in the forward exchange market.
A) selling; selling
B) selling; purchasing
C) purchasing; purchasing
D) purchasing; selling
ANSWER: A
14. When you own _______, there is no obligation on your part; however, when you own
_______, there is an obligation on your part.
A) call options; put options
B) futures contracts; call options
C) forward contracts; futures contracts
D) put options; forward contracts
ANSWER: D
15. The greater the variability of a currency, the _______ will be the premium of a call option on this currency, and the _______ will be the premium of a put option on this currency, other things equal.
A) greater; lower
B) greater; greater
C) lower; greater
D) lower; lower
ANSWER: B
16. When currency options are not standardized and traded over-the-counter, there is ______ liquidity and a ________ bid/ask spread. 买卖差价
A) less; narrower
B) more; narrower
C) more; wider
D) less; wider
ANSWER: D
17. 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
18. Assume that a speculator purchases a put option on British pounds (with a strike price of $ for $.05 per unit. A pound option represents 31,250 units. Assume that at the
time of the purchase, the spot rate of the pound is $ and continually rises to $ by
the expiration date. The highest net profit possible for the speculator based on the information above is:
A) $1,.
B) -$1,.
C) -$1,.
D) -$.
ANSWER: B
SOLUTION: The premium of the option is $.05 x (31,250 units) = $1,. Since the
option will not be exercised, the net profit is -$1,.
19. Which of the following is true
A) The futures market is primarily used by speculators while the forward market is primarily used for hedging. 期货—投机远期——套利
B) The futures market is primarily used for hedging while the forward market is
primarily used for speculating.
C) The futures market and the forward market are primarily used for speculating.
D) The futures market and the forward market are primarily used for hedging. ANSWER: A
20. Which of the following is true
A) Most forward contracts between firms and banks are for speculative purposes.
B) Most future contracts represent a conservative approach by firms to hedge foreign trade.
C) The forward contracts offered by banks have maturities for only four possible dates in the future.
D) none of the above
ANSWER: D
21. If you expect the euro to depreciate, it would be appropriate to _______ for speculative purposes.
A) buy a euro call and buy a euro put
B) buy a euro call and sell a euro put
C) sell a euro call and sell a euro put
D) sell a euro call and buy a euro put
ANSWER: D