CHAPTER 5 QUIZ EXAM QUESTIONS
AND ANSWERS. VERIFIED 2026/2027.
When currency options are not standardized and traded over-the-counter, there is ____
liquidity and a ____ bid/ask spread. - ANS Less; Wider
Which of the follow is correct? - ANS The lower the exercise price relative to the spot rate,
the greater the value of a currency call option, other things being equal.
If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call
options or ____ euros forward in the forward exchange market. - ANS Selling; Selling
If you expect the euro to depreciate, it would be appropriate to ________ for speculative
purposes. - ANS Sell A Euro Call and Buy a Euro Put
The premium on a pound put option is $.03 per unit. The exercise price is $1.60. The break-even
point is ____ for the buyer of the put, and ____ for the seller of the put. (Assume zero
transactions costs and that the buyer and seller of the put option are speculators.) -
ANS $1.57; $1.57
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. - ANS Lower; Lower
Assume that speculator purchases a put option on British Pounds (with a strike price of $1.50)
for $.05 per unit. A pound option represents 31,250 Units. Assume that at the time of the
1 @2026 COPY ALLRIGHTS RESERVED.
, purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration
date. The highest net profit possible for the speculator based on the information above is.. -
ANS -$1,562.50
A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate
is $.59. This call option can be referred to as: - ANS In the money
You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit,
with an exercise price of $.86. The option will not be exercised until the expiration date, if at all.
If the spot rate of the Canadian dollar is $.78 on the expiration date, your net profit per unit is: -
ANS -$.05
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 put option premium is the ___ Price. -
ANS Exercise and spot; spot
European currency options can be exercised ___; American Currency options can be exercised
___. - ANS Only on the expiration date; any time up to the expiration date.
Which of the following is not true regarding currency options? - ANS Options are traded on
exchanges, never over the counter.
Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current
level of $.19 to $.21. Currently, kroner call options are available with an exercise price of $.18
and a premium of $.02. Should Frank attempt to buy this option? If the future spot rate of the
Danish kroner is indeed $.21, what is his profit or loss per unit? - ANS Yes; $.01
You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of
$1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the
expiration date is $1.65, your net profit per unit is: - ANS -$.02
A call 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. - ANS Spot and Exercise; Spot
2 @2026 COPY ALLRIGHTS RESERVED.
AND ANSWERS. VERIFIED 2026/2027.
When currency options are not standardized and traded over-the-counter, there is ____
liquidity and a ____ bid/ask spread. - ANS Less; Wider
Which of the follow is correct? - ANS The lower the exercise price relative to the spot rate,
the greater the value of a currency call option, other things being equal.
If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call
options or ____ euros forward in the forward exchange market. - ANS Selling; Selling
If you expect the euro to depreciate, it would be appropriate to ________ for speculative
purposes. - ANS Sell A Euro Call and Buy a Euro Put
The premium on a pound put option is $.03 per unit. The exercise price is $1.60. The break-even
point is ____ for the buyer of the put, and ____ for the seller of the put. (Assume zero
transactions costs and that the buyer and seller of the put option are speculators.) -
ANS $1.57; $1.57
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. - ANS Lower; Lower
Assume that speculator purchases a put option on British Pounds (with a strike price of $1.50)
for $.05 per unit. A pound option represents 31,250 Units. Assume that at the time of the
1 @2026 COPY ALLRIGHTS RESERVED.
, purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration
date. The highest net profit possible for the speculator based on the information above is.. -
ANS -$1,562.50
A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate
is $.59. This call option can be referred to as: - ANS In the money
You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit,
with an exercise price of $.86. The option will not be exercised until the expiration date, if at all.
If the spot rate of the Canadian dollar is $.78 on the expiration date, your net profit per unit is: -
ANS -$.05
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 put option premium is the ___ Price. -
ANS Exercise and spot; spot
European currency options can be exercised ___; American Currency options can be exercised
___. - ANS Only on the expiration date; any time up to the expiration date.
Which of the following is not true regarding currency options? - ANS Options are traded on
exchanges, never over the counter.
Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current
level of $.19 to $.21. Currently, kroner call options are available with an exercise price of $.18
and a premium of $.02. Should Frank attempt to buy this option? If the future spot rate of the
Danish kroner is indeed $.21, what is his profit or loss per unit? - ANS Yes; $.01
You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of
$1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the
expiration date is $1.65, your net profit per unit is: - ANS -$.02
A call 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. - ANS Spot and Exercise; Spot
2 @2026 COPY ALLRIGHTS RESERVED.
