Fin 4604 Exam 2 Questions And Correct
Answers
Call and put options premiums are affected by the level of existing spot price relative to the
strike price. A ____ spot price relative to the strike price results in relatively ____ premium for a
call option but a relatively ____ premium for a put option. a. High; High; Low
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 $.85, what is the net amount received by the corporation if it acts rationally?
b. $84,000.
A U.S. corporation has purchased currency call options to hedge a 70,000 pound payable. The
premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of
maturity is $.65, what is the total amount paid by the corporation if it acts rationally? d.
$36,400
If you have acquired the right but not the obligation to sell, you are a: b. Put buyer.
Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to
hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089,
, Fin 4604 Exam 2 Questions And Correct
Answers
while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many
dollars will you receive for the 5,000,000 yen 60 days from now? d. $47,500
A speculator sells a put option on Canadian dollars for a premium of $.03 per unit. with an
exercise price of $.98. The size of the option contact is C$50,000 and will not be exercised until
expiration if at all. If the spot rate for Canadian dollar is $90 on at expiration, the net profit for
the speculator is: b. - $2500
Solution: 50,000[.03 +.90 - .98] = 50,000[-.05] = -$2500
The purchase of a currency put option would be appropriate for a U.S company under which of
the following? d. Company expects to collect a foreign currency accounts receivable in
six months
If you have a covered derivative position where you might be obligated to buy Euros, you are a:
b. Put writer
Assume the following information:
, Fin 4604 Exam 2 Questions And Correct
Answers
i. You have $900,000 to invest
ii. Current spot rate of Australian dollar (A$) is $0.62
iii. 180-day forward rate of the Australian dollar is $0.64
iv. 180-day interest rate in the U.S. is 3.5%
v. 180-day interest rate in Australia is 3.0%
What is the dollar profit obtainable after 180 days from covered interest arbitrage? a.
$56,903
Assume the following information:
You have $900,000 to invest
Current spot rate of Australian dollar (A$) is $0.62
180-day forward rate of the Australian dollar is $0.64
180-day interest rate in the U.S. is 3.5%
180-day interest rate in Australia is 3.0%
What is the percentage arbitrage profit obtainable after 180 days from covered interest arbitrage?
6.32%
, Fin 4604 Exam 2 Questions And Correct
Answers
The exchange rate quoted by Bank X for the Brazilian real (R) is 98 Japanese yen (¥/R= 98).
Bank Y also quotes a price for the yen of $/¥ = 0.009, while Bank Z quotes a price for the real of
$/R = 0.88. You have $150,000 to conduct triangular arbitrage. What is will be your return from
conducting triangular arbitrage? a. 0.23%
Which of the following factors in not affected when market forces resulting from covered
interest arbitrage cause market realignment? b. The future spot rate
Which of the following is not true regarding economic exposure? c. U.S.-based MNCs
can benefit from a strong dollar by increasing the volume of their exports.
Under a ___________, the exporter is paid once shipment has been made and the draft is
presented to the buyer for payment; under a ___________, the exporter
provides instructions to the buyer's bank to release shipping documents against acceptance, by
the buyer, of the draft. a. Sight draft; time draft
If trade transactions handled on a draft basis are processed through banking channels, they may
be b. "Documents against payment."
Answers
Call and put options premiums are affected by the level of existing spot price relative to the
strike price. A ____ spot price relative to the strike price results in relatively ____ premium for a
call option but a relatively ____ premium for a put option. a. High; High; Low
A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$)
receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the
time of maturity is $.85, what is the net amount received by the corporation if it acts rationally?
b. $84,000.
A U.S. corporation has purchased currency call options to hedge a 70,000 pound payable. The
premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of
maturity is $.65, what is the total amount paid by the corporation if it acts rationally? d.
$36,400
If you have acquired the right but not the obligation to sell, you are a: b. Put buyer.
Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to
hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089,
, Fin 4604 Exam 2 Questions And Correct
Answers
while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many
dollars will you receive for the 5,000,000 yen 60 days from now? d. $47,500
A speculator sells a put option on Canadian dollars for a premium of $.03 per unit. with an
exercise price of $.98. The size of the option contact is C$50,000 and will not be exercised until
expiration if at all. If the spot rate for Canadian dollar is $90 on at expiration, the net profit for
the speculator is: b. - $2500
Solution: 50,000[.03 +.90 - .98] = 50,000[-.05] = -$2500
The purchase of a currency put option would be appropriate for a U.S company under which of
the following? d. Company expects to collect a foreign currency accounts receivable in
six months
If you have a covered derivative position where you might be obligated to buy Euros, you are a:
b. Put writer
Assume the following information:
, Fin 4604 Exam 2 Questions And Correct
Answers
i. You have $900,000 to invest
ii. Current spot rate of Australian dollar (A$) is $0.62
iii. 180-day forward rate of the Australian dollar is $0.64
iv. 180-day interest rate in the U.S. is 3.5%
v. 180-day interest rate in Australia is 3.0%
What is the dollar profit obtainable after 180 days from covered interest arbitrage? a.
$56,903
Assume the following information:
You have $900,000 to invest
Current spot rate of Australian dollar (A$) is $0.62
180-day forward rate of the Australian dollar is $0.64
180-day interest rate in the U.S. is 3.5%
180-day interest rate in Australia is 3.0%
What is the percentage arbitrage profit obtainable after 180 days from covered interest arbitrage?
6.32%
, Fin 4604 Exam 2 Questions And Correct
Answers
The exchange rate quoted by Bank X for the Brazilian real (R) is 98 Japanese yen (¥/R= 98).
Bank Y also quotes a price for the yen of $/¥ = 0.009, while Bank Z quotes a price for the real of
$/R = 0.88. You have $150,000 to conduct triangular arbitrage. What is will be your return from
conducting triangular arbitrage? a. 0.23%
Which of the following factors in not affected when market forces resulting from covered
interest arbitrage cause market realignment? b. The future spot rate
Which of the following is not true regarding economic exposure? c. U.S.-based MNCs
can benefit from a strong dollar by increasing the volume of their exports.
Under a ___________, the exporter is paid once shipment has been made and the draft is
presented to the buyer for payment; under a ___________, the exporter
provides instructions to the buyer's bank to release shipping documents against acceptance, by
the buyer, of the draft. a. Sight draft; time draft
If trade transactions handled on a draft basis are processed through banking channels, they may
be b. "Documents against payment."
