International Test 2 _ Comprehensive Test Bank and Practice Questions Page 1 International Test 2 _ Comprehensive Test Bank and Practice Questions.pdf
International Test 2 |
Comprehensive Test Bank
and Practice Questions
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Page 1 of 31 2026-03-17
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Relative to the spot price, the forward price is
usually less than or more than the spot price more often than it is equal to the spot price
For a U.S. trader working in American quotes, if the forward price is higher than the spot price
the currency is trading at a premium in the forward market.
the forward market
involves contracting today for the future purchase or sale of foreign exchange at a price agreed upon today.
If one has agreed to buy a foreign exchange forward,
you have a long position in the forward contract.
The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a short position
on €1,000. At maturity, the spot exchange rate is $1.60/€. How much have you made or lost?
lost $100
Page 2 of 31 2 of 31 2026-03-17
,International Test 2- Test Bank Page 3 International Test 2- Test Bank.pdf
The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the
exchange rate, you are confident that the spot exchange rate will be $1.52/€ in three months. Assume that you would
like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market?
Take a long position in a forward contract on €1,000,000 at $1.50/€.
The current spot exchange rate is $1.45/€ and the three-month forward rate is $1.55/€. Based upon your economic
forecast, you are pretty confident that the spot exchange rate will be $1.50/€ in three months. Assume that you would
like to buy or sell €100,000. What actions would you take to speculate in the forward market? How much will you
make if your prediction is correct?
Take a short position in a forward contract on euro. If you're right you will make $5,000.
Consider a trader who takes a long position in a six-month forward contract on the euro. The forward rate is $1.75 =
€1.00; the contract size is €62,500. At the maturity of the contract the spot exchange rate is $1.65 = €1.00.
The trader has lost $6,250.
Page 3 of 31 3 of 31 2026-03-17
, International Test 2- Test Bank Page 4 International Test 2- Test Bank.pdf
The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the
exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would
like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the
expected dollar profit from speculation?
Buy €1,000,000 forward for $1.50/€.
When a currency trades at a premium in the forward market
the forward rate is more than the spot rate
When a currency trades at a discount in the forward market
the forward rate is less than the spot rate.
The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/$. The forward premium
(discount) is
the dollar trading at an 8% premium to the Swiss franc for delivery in 180 days.
Page 4 of 31 4 of 31 2026-03-17
International Test 2 |
Comprehensive Test Bank
and Practice Questions
Guidehttps://www.stuvia.com/dashboard!@_)#*)(@$)($@*($@)($@*_1 of 31
Page 1 of 31 2026-03-17
,International Test 2- Test Bank Page 2 International Test 2- Test Bank.pdf
Relative to the spot price, the forward price is
usually less than or more than the spot price more often than it is equal to the spot price
For a U.S. trader working in American quotes, if the forward price is higher than the spot price
the currency is trading at a premium in the forward market.
the forward market
involves contracting today for the future purchase or sale of foreign exchange at a price agreed upon today.
If one has agreed to buy a foreign exchange forward,
you have a long position in the forward contract.
The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a short position
on €1,000. At maturity, the spot exchange rate is $1.60/€. How much have you made or lost?
lost $100
Page 2 of 31 2 of 31 2026-03-17
,International Test 2- Test Bank Page 3 International Test 2- Test Bank.pdf
The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the
exchange rate, you are confident that the spot exchange rate will be $1.52/€ in three months. Assume that you would
like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market?
Take a long position in a forward contract on €1,000,000 at $1.50/€.
The current spot exchange rate is $1.45/€ and the three-month forward rate is $1.55/€. Based upon your economic
forecast, you are pretty confident that the spot exchange rate will be $1.50/€ in three months. Assume that you would
like to buy or sell €100,000. What actions would you take to speculate in the forward market? How much will you
make if your prediction is correct?
Take a short position in a forward contract on euro. If you're right you will make $5,000.
Consider a trader who takes a long position in a six-month forward contract on the euro. The forward rate is $1.75 =
€1.00; the contract size is €62,500. At the maturity of the contract the spot exchange rate is $1.65 = €1.00.
The trader has lost $6,250.
Page 3 of 31 3 of 31 2026-03-17
, International Test 2- Test Bank Page 4 International Test 2- Test Bank.pdf
The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the
exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would
like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the
expected dollar profit from speculation?
Buy €1,000,000 forward for $1.50/€.
When a currency trades at a premium in the forward market
the forward rate is more than the spot rate
When a currency trades at a discount in the forward market
the forward rate is less than the spot rate.
The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/$. The forward premium
(discount) is
the dollar trading at an 8% premium to the Swiss franc for delivery in 180 days.
Page 4 of 31 4 of 31 2026-03-17
