FIN4604 Questions And Correct Answers
The development and expansion of the Euro-currency market were fostered by inward-
looking regulations in national financial markets, US-Soviet cold war era strategies, OPEC's
petrodollar recycling activities, and persistent US BOP deficits resulting in more foreign
holdings of US dollars
The concept of narrow spread in the Eurocurrency market means lower transaction costs
permit higher yields to depositors and lower costs to borrowers
The following are designed for SHORT term investment of financing needs of clients in the
Eurocurrency market euro-commercial paper, euro credits, and euro CDs
The eurocurrency market is a central mechanism to channel the flow of international
funds among banks and corporations; it exhibits low costs per transaction because of relatively
large size of transactions
If a US firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000
pounds in 90 days it could sell pounds forward for 90 days
, FIN4604 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 high, high, low
A US Corp has purchased currency put options to hedge a 100,000 Canadian dollar receivable.
The premium of $.01 and the exercise price of the options 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?
$84,000
A US Corp has purchased currency call options to hedge a 70,000 pound payable. The premium
is $.02 and the exercise price of the option is $.05. If the spot rate at the time of maturity is $.65,
what is the total amount paid by the corporation if it acts rationally? $36,400
=(.02+.5)*70,000
If you have acquired the right but not the obligation to sell, you are a 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,
while the forward rate is $.0095. You expect the spot rate in 60 days to be $.009. How many
, FIN4604 Questions And Correct Answers
dollars will you receive for the 5,000,000 yen 60 days from now?
47,500=.0095*5,000,000
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 contract 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: -$25,000= (.03+.9-.98)*50,000
The purchase of a currency put option would be appropriate for a US Company under which of
the following? 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
put writer
You have $900,000 to invest. Current spot rate of Australia dollar is $.62. 180 day forward rate
of the Australian dollar is $.64. 180 day interest rate in the US is 3.5%, 180 day interest rate in
Australia is 3%. What is the dollar profit obtainable after 180 days from covered interest
arbitrage? 56,903
The development and expansion of the Euro-currency market were fostered by inward-
looking regulations in national financial markets, US-Soviet cold war era strategies, OPEC's
petrodollar recycling activities, and persistent US BOP deficits resulting in more foreign
holdings of US dollars
The concept of narrow spread in the Eurocurrency market means lower transaction costs
permit higher yields to depositors and lower costs to borrowers
The following are designed for SHORT term investment of financing needs of clients in the
Eurocurrency market euro-commercial paper, euro credits, and euro CDs
The eurocurrency market is a central mechanism to channel the flow of international
funds among banks and corporations; it exhibits low costs per transaction because of relatively
large size of transactions
If a US firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000
pounds in 90 days it could sell pounds forward for 90 days
, FIN4604 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 high, high, low
A US Corp has purchased currency put options to hedge a 100,000 Canadian dollar receivable.
The premium of $.01 and the exercise price of the options 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?
$84,000
A US Corp has purchased currency call options to hedge a 70,000 pound payable. The premium
is $.02 and the exercise price of the option is $.05. If the spot rate at the time of maturity is $.65,
what is the total amount paid by the corporation if it acts rationally? $36,400
=(.02+.5)*70,000
If you have acquired the right but not the obligation to sell, you are a 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,
while the forward rate is $.0095. You expect the spot rate in 60 days to be $.009. How many
, FIN4604 Questions And Correct Answers
dollars will you receive for the 5,000,000 yen 60 days from now?
47,500=.0095*5,000,000
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 contract 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: -$25,000= (.03+.9-.98)*50,000
The purchase of a currency put option would be appropriate for a US Company under which of
the following? 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
put writer
You have $900,000 to invest. Current spot rate of Australia dollar is $.62. 180 day forward rate
of the Australian dollar is $.64. 180 day interest rate in the US is 3.5%, 180 day interest rate in
Australia is 3%. What is the dollar profit obtainable after 180 days from covered interest
arbitrage? 56,903
