Question 1

A Collar is more flexible than futures and forwards allowing limited gains if there is a favourable price movement and it is cheaper than an option as potential gains are limited.

Accepted Answer

A) True 
 B)False

Question 2

A UK corporation has purchased currency call options to hedge a 70,000 dollar payable. The premium is £0.015 and the exercise price of the option is £0.54. If the spot rate at the time of maturity is £0.59, what is the total amount paid by the corporation if it acts rationally?

Accepted Answer

A)   £36,750
B)   £1,050
C)   £37,800
D)   £38,850E) A) and B)
F) A) and C)

Question 3

Which of the following would result in a profit of a euro futures contract when the euro depreciates?

Accepted Answer

A)   Buy a euro futures contract; sell a futures contract after the euro has depreciated.
B)   Sell a euro futures contract; buy a futures contract after the euro has depreciated.
C)   Buy a euro futures contract; buy an additional futures contract after the euro has depreciated.
D)   None of the above would result in a profit when the euro depreciates.E) C) and D)
F) All of the above

Question 4

A firm sells a currency futures contract, then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:

Accepted Answer

A)   buying an identical futures contract.
B)   selling an identical futures contract.
C)   buying a futures contract with a different settlement date.
D)   selling a futures contract for a different amount of currency.
E)   purchasing a put option contract in the same currency.F) C) and D)
G) B) and E)

Question 5

Research has found that the currency options market is:

Accepted Answer

A)   efficient before controlling for transaction costs.
B)   efficient after controlling for transaction costs.
C)   highly inefficient.
D)   none of the aboveE) C) and D)
F) A) and C)

Question 6

For a barrier option, if the price during the life of the option touches or crosses a barrier the option can either start (_____)  or end (______) .

Accepted Answer

A)   knock out; knock in
B)   knock in; knock out
C)   knock out; knock out
D)   knock in; knock inE) B) and C)
F) A) and B)

Question 7

The lower bound of a put option premium is the greater of zero and the difference between the exercise price and the spot rate; the upper bound of a currency put option is the exercise price.

Accepted Answer

A) True 
 B)False

Question 8

If an actual put option premium is less than what is suggested by the put-call parity relationship, arbitrage can be conducted.

Accepted Answer

A) True 
 B)False

Question 9

Futures and options are available for crossrates.

Accepted Answer

A) True 
 B)False

Question 10

You purchase a call option on dollars for a premium of £0.02 per unit, with an exercise price of £0.57; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is £0.58, your net profit per unit is:

Accepted Answer

A)   £0.00.
B)   -£0.02.
C)   -£0.01.
D)   £0.02.
E)   none of the aboveF) B) and D)
G) A) and B)

Question 11

Which of the following is not true regarding options?

Accepted Answer

A)   Options are traded on exchanges, never over-the-counter.
B)   Similar to futures contracts, margin requirements are normally imposed on option traders.
C)   Although commissions for options are fixed per transaction, multiple contracts may be involved in a transaction, thus lowering the commission per contract.
D)   Currency options can be classified as either put or call options.
E)   All of the above are true.F) A) and C)
G) B) and C)

Question 12

A put option premium has a lower bound that is equal to the greater of zero and the difference between the underlying ____ prices. The upper bound of a call option premium is the ____ price.

Accepted Answer

A)   spot and exercise; exercise
B)   spot and exercise; spot
C)   exercise and spot; exercise
D)   exercise and spot; spotE) None of the above
F) A) and B)

Question 13

A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Accepted Answer

A) True 
 B)False

Question 14

Assume the spot rate of a currency is £0.67 and the 360-day forward rate is £0.63. The forward rate of this currency exhibits a ____ of ____ on an annualized basis.

Accepted Answer

A)   discount; 5.97%
B)   premium; 6.35%
C)   premium; 5.97%
D)   discount; 6.35%E) A) and C)
F) All of the above

Question 15

If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.

Accepted Answer

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 putE) All of the above
F) None of the above

Exam 5: Currency Derivatives

The lower bound of a put option premium is the greater of zero and the difference between the exercise price and the spot rate; the upper bound of a currency put option is the exercise price.

Correct Answer
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If an actual put option premium is less than what is suggested by the put-call parity relationship, arbitrage can be conducted.

Correct Answer
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Assume the spot rate of a currency is £0.67 and the 360-day forward rate is £0.63. The forward rate of this currency exhibits a of on an annualized basis.

Correct Answer
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You purchase a call option on dollars for a premium of £0.02 per unit, with an exercise price of £0.57; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is £0.58, your net profit per unit is:

Correct Answer
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A put option premium has a lower bound that is equal to the greater of zero and the difference between the underlying prices. The upper bound of a call option premium is the price.

Correct Answer
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Which of the following is not true regarding options?

Correct Answer
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A UK corporation has purchased currency call options to hedge a 70,000 dollar payable. The premium is £0.015 and the exercise price of the option is £0.54. If the spot rate at the time of maturity is £0.59, what is the total amount paid by the corporation if it acts rationally?

Correct Answer
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A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Correct Answer
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For a barrier option, if the price during the life of the option touches or crosses a barrier the option can either start (_) or end (__) .

Correct Answer
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Research has found that the currency options market is:

Correct Answer
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If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.

Correct Answer
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Futures and options are available for crossrates.

Correct Answer
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A firm sells a currency futures contract, then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:

Correct Answer
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Which of the following would result in a profit of a euro futures contract when the euro depreciates?

Correct Answer
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A Collar is more flexible than futures and forwards allowing limited gains if there is a favourable price movement and it is cheaper than an option as potential gains are limited.

Correct Answer
verified

Exam 5: Currency Derivatives

The lower bound of a put option premium is the greater of zero and the difference between the exercise price and the spot rate; the upper bound of a currency put option is the exercise price.

Correct AnswerverifiedShow Answer

If an actual put option premium is less than what is suggested by the put-call parity relationship, arbitrage can be conducted.

Correct AnswerverifiedShow Answer

Assume the spot rate of a currency is £0.67 and the 360-day forward rate is £0.63. The forward rate of this currency exhibits a ____ of ____ on an annualized basis.

Correct AnswerverifiedShow Answer

You purchase a call option on dollars for a premium of £0.02 per unit, with an exercise price of £0.57; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is £0.58, your net profit per unit is:

Correct AnswerverifiedShow Answer

A put option premium has a lower bound that is equal to the greater of zero and the difference between the underlying ____ prices. The upper bound of a call option premium is the ____ price.

Correct AnswerverifiedShow Answer

Which of the following is not true regarding options?

Correct AnswerverifiedShow Answer

A UK corporation has purchased currency call options to hedge a 70,000 dollar payable. The premium is £0.015 and the exercise price of the option is £0.54. If the spot rate at the time of maturity is £0.59, what is the total amount paid by the corporation if it acts rationally?

Correct AnswerverifiedShow Answer

A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Correct AnswerverifiedShow Answer

For a barrier option, if the price during the life of the option touches or crosses a barrier the option can either start (_____) or end (______) .

Correct AnswerverifiedShow Answer

Research has found that the currency options market is:

Correct AnswerverifiedShow Answer

If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.

Correct AnswerverifiedShow Answer

Futures and options are available for crossrates.

Correct AnswerverifiedShow Answer

A firm sells a currency futures contract, then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:

Correct AnswerverifiedShow Answer

Which of the following would result in a profit of a euro futures contract when the euro depreciates?

Correct AnswerverifiedShow Answer

A Collar is more flexible than futures and forwards allowing limited gains if there is a favourable price movement and it is cheaper than an option as potential gains are limited.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Assume the spot rate of a currency is £0.67 and the 360-day forward rate is £0.63. The forward rate of this currency exhibits a of on an annualized basis.

Correct Answer
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Correct Answer
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A put option premium has a lower bound that is equal to the greater of zero and the difference between the underlying prices. The upper bound of a call option premium is the price.

Correct Answer
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For a barrier option, if the price during the life of the option touches or crosses a barrier the option can either start (_) or end (__) .

Correct Answer
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Correct Answer
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