INTERNATIONAL MONEY MARKETS

Multiple Choice. Identify the letter of the choice that best completes the statement or answers the question.

1. At any given point in time, the price at which banks will buy a currency is ____ the price at which they sell it.
A. Higher than.
B. Lower than.
C. The same as.
D. None of the above.
2. Currency futures contracts sold on an exchange
A. Contain a commitment to the owner, and are standardized.
B. Contain a commitment to the owner, and can be tailored to the desire of the owner.
C. Contain a right but not a commitment to the owner, and can be tailored to the desire of the owner.
D. Contain a right but not a commitment to the owner, and are standardized.
3. Currency options sold through an options exchange
A. Contain a commitment to the owner, and are standardized.
B. Contain a commitment to the owner, and can be tailored to the desire of the owner.
C. Contain a right but not a commitment to the owner, and can be tailored to the desire of the owner.
D. Contain a right but not a commitment to the owner, and are standardized.
4. If the demand for British pounds ____, the pound will ____, other things being equal.
A. Increases; appreciate.
B. Decreases; appreciate.
C. Increases; depreciate.
D. B and C.
5. A(n) ____ in the supply of euros for sale will cause the euro to ____.
A. Increase; appreciate.
B. Increase; depreciate.
C. Decrease; depreciate.
D. None of the above.
6. ____ are not foreign exchange derivatives.
A. Forward contracts.
B. Currency futures contracts.
C. Currency swaps.
D. Currency options.
E. All of the above are foreign exchange derivatives.
7. According to the text, the forward rate is commonly used for
A. Hedging.
B. Immediate transactions.
C. Previous transactions.
D. Bond transactions.
8. An obligation to purchase a specific amount of currency at a future point in time is called a
A. Call option.
B. Spot contract.
C. Put option.
D. Forward contract.
E. Both B and D.
9. Currency futures contracts differ from forward contracts in that they
A. Are an obligation.
B. Are not an obligation.
C. Are standardized.
D. Can specify any amount and maturity date.
10. Which of the following statements is most CORRECT?
A. Futures contracts generally trade on an organized exchange and are marked to market daily.
B. Goods are never delivered under forward contracts, but are almost always delivered under futures
contracts.
C. There are futures contracts for currencies but no forward contracts for currencies.
D. Futures contracts don’t have any margin requirements but forward contracts do.
E. One advantage of forward contracts is that they are default free.
11. Assume a U.S. firm has to pay for Korean imports in 60 days. It expects that Korean won will depreciate, but it still
wants to hedge its risk. What type of hedging is more appropriate in this situation
A. Buy dollars forward.
B. Sell dollars forward.
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C. Purchase call option.

D. Purchase put option.
12. 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 $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if
you sell yen forward?
A. $44,500.
B. $45,000.
C. $526 million.
D. $47,500.
E. $556 million.
13. If the spot rate of the British pound is $2, and the 180-day forward rate is $2.05, what is the annualized premium or
discount?
A. 2.5 percent discount.
B. 2.5 percent premium.
C. 10 percent premium.
D. 5 percent discount.
E. 5 percent premium.
14. Which of the following is probably not an example of the use of forward contracts by an MNC?
A. Hedging pound payables by selling pounds forward.
B. Hedging peso receivables by selling pesos forward.
C. Hedging yen payables by purchasing yen forward.
D. Hedging peso payables by purchasing pesos forward.
E. All of the above are examples of using forward contracts.
15. A quotation representing the value of a foreign currency in dollars is referred to as a(n) ____ quotation; a quotation
representing the number of units of a foreign currency per dollar is referred to as a(n) ____ quotation.
A. Direct; indirect.
B. Indirect; direct.
C. Direct; direct.
D. Indirect; indirect.
E. Cannot be answered without more information.
16. Futures contracts are sold on exchanges and are consequently ____ than forward contracts, which can be ____ to
satisfy an MNC's needs.
A. More standardized; standardized.
B. More standardized; custom-tailored.
C. More custom-tailored; standardized.
D. More custom-tailored; custom-tailored.
E. Less standardized; custom-tailored.
17. You observe a quotation of the Japanese yen (¥) of $0.007. You are, however, interested in the number of yen per
dollar. Thus, you calculate the ____ quotation of ____ ¥/$.
A. Direct; 142.86.
B. Indirect; 142.86.
C. Indirect; 150.
D. Direct; 150.
E. Indirect; 0.
18. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in 90 days, it could
A. Obtain a 90-day forward purchase contract on euros.
B. Obtain a 90-day forward sale contract on euros.
C. Purchase euros 90 days from now at the spot rate.
D. Sell euros 90 days from now at the spot rate.
19. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need C$200,000 in 90 days to make
payment on imports from Canada, it could
A. Obtain a 90-day forward purchase contract on Canadian dollars.
B. Obtain a 90-day forward sale contract on Canadian dollars.
C. Purchase Canadian dollars 90 days from now at the spot rate.
D. Sell Canadian dollars 90 days from now at the spot rate.
20. Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is equal to $.35. The value of the Peruvian Sol in
Canadian dollars is
A. About .3621 Canadian dollars.
B. About .3977 Canadian dollars.
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C. About 2.36 Canadian dollars.

D. About 2.51 Canadian dollars.
21. Which of the following is not true with respect to spot market liquidity?
A. The more willing buyers and sellers there are, the more liquid a market is.
B. The spot markets for heavily traded currencies such as the Japanese yen are very liquid.
C. A currency's liquidity affects the ease with which an MNC can obtain or sell that currency.
D. If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange
rate.
22. Forward markets for currencies of developing countries are
A. Prohibited.
B. Less liquid than markets for developed countries.
C. More liquid than markets for developed countries.
D. Only available for use by government agencies.
23. A forward contract can be used to lock in the ____ of a specified currency for a future point in time.
A. Purchase price.
B. Sale price.
C. A or B.
D. None of the above.
24. The forward market
A. For euros is very illiquid.
B. For Eastern European countries is very liquid.
C. Does not exist for some currencies.
D. None of the above.
25. ____ is not a bank characteristic important to customers in need of foreign exchange.
A. Quote competitiveness.
B. Speed of execution.
C. Forecasting advice.
D. Advice about current market conditions.
E. All of the above are important bank characteristics to customers in need of foreign exchange.
26. The Basel II accord is focused on eliminating inconsistencies in ____ across countries.
A. Capital requirements.
B. Deposit rates.
C. Deposit insurance.
D. Bank failure policies.
27. LIBOR is
A. The interest rate commonly charged for loans between banks.
B. The average inflation rate in European countries.
C. The maximum loan rate ceiling on loans in the international money market.
D. The maximum deposit rate ceiling on deposits in the international money market.
E. The maximum interest rate offered on bonds that are issued in London.
28. International money market transactions normally represent
A. The equivalent of $1 million or more.
B. The equivalent of $1,000 to $10,000.
C. The equivalent of between $10,000 and $100,000.
D. The equivalent of between $100,000 and $200,000.
29. From 1944 to 1971, the exchange rate between any two currencies was typically
A. Fixed within narrow boundaries.
B. Floating, but subject to central bank intervention.
C. Floating, and not subject to central bank intervention.
D. Nonexistent; that is currencies were not exchanged, but gold was used to pay for all foreign transactions.
30. As a result of the Smithsonian Agreement, the U.S. dollar was
A. The currency to be used by all countries as a medium of exchange for international trade.
B. Forced to be freely floating relative to all currencies without any boundaries.
C. Devalued relative to major currencies.
D. Revalued (upward) relative to major currencies.
31. According to actual exchanges, the average foreign exchange trading around the world ____ per day.
A. Equals about $200 billion.
B. Equals about $400 billion.
C. Equals about $700 billion.
D. Exceeds $1 trillion.
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32. Assume a Japanese firm invoices exports to the U.S. in U.S. dollars. Assume that the forward rate and spot rate of
the Japanese yen are equal. If the Japanese firm expects the U.S. dollar to ____ against the yen, it would likely wish
to hedge. It could hedge by ____ dollars forward.
A. Depreciate; buying.
B. Depreciate; selling.
C. Appreciate; selling.
D. Appreciate; buying.
33. The bid-ask spread on an exchange rate can be used to directly determine
A. How an exchange rate will change.
B. The transaction cost of foreign exchange.
C. The forward premium.
D. The currency option premium.
34. Futures contracts are typically ____; forward contracts are typically ____.
A. Sold on an exchange; sold on an exchange.
B. Offered by commercial banks; sold on an exchange.
C. Sold on an exchange; offered by commercial banks.
D. Offered by commercial banks; offered by commercial banks.
35. Eurobonds
A. Are usually issued in bearer form.
B. Typically carry several protective covenants.
C. Cannot contain call provisions.
D. A and B.
36. Which currency is used the most to denominate Eurobonds?
A. The British pound.
B. The Japanese yen.
C. The U.S. dollar.
D. The Swiss franc.
37. When the foreign exchange market opens in the U.S. each morning, the opening exchange rate quotations will be
based on the
A. Closing prices in the U.S. during the previous day.
B. Closing prices in Canada during the previous day.
C. Prevailing prices in locations where the foreign exchange markets have been open.
D. Officially set by central banks before the U.S. market opens.
38. The U.S. dollar is not ever used as a medium of exchange in
A. Industrialized countries outside the U.S.
B. In any Latin American countries.
C. In Eastern European countries where foreign exchange restrictions exist.
D. None of the above.
39. Which of the following is not true regarding the Bretton Woods Agreement?
A. It called for fixed exchange rates between currencies.
B. Governments intervened to prevent exchange rates from moving more than 1 percent above or below their
initially established levels.
C. The agreement lasted from 1944 until 1971.
D. Each country used gold to back its currency.
E. All of the above are true regarding the Bretton Woods Agreement.
40. A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in Fijian dollars?
A. 73.75.
B. 125.
C. 1.69.
D. 0.014.
E. None of the above.
41. Assume that the bank's bid quote of Mexican peso is $.126 and ask price is $.129. If you have Mexican pesos, what is
the amount of pesos that you need to purchase $100,000?
A. 12,600.
B. 775,194.
C. 793,651.
D. 12,900.
42. Forward contracts
A. Contain a commitment to the owner, and are standardized.
B. Contain a commitment to the owner, and can be tailored to the desire of the owner.
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C. Contain a right but not a commitment to the owner, and can be tailored to the desire of the owner.
D. Contain a right but not a commitment to the owner, and are standardized.
43. Which of the following is the most likely strategy for a U.S. firm that will be receiving Swiss francs in the future and
desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?
A. Purchase a call option on francs.
B. Sell a futures contract on francs.
C. Obtain a forward contract to purchase francs forward.
D. All of the above are appropriate strategies for the scenario described.
44. Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future
and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?
A. Purchase a call option on francs.
B. Obtain a forward contract to purchase francs forward.
C. Sell a futures contract on francs.
D. All of the above are appropriate strategies for the scenario described.
45. If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros
forward in the forward exchange market.
A. Selling; selling.
B. Selling; purchasing.
C. Purchasing; purchasing.
D. Purchasing; selling.
46. When you own ____, there is no obligation on your part; however, when you own ____, there is an obligation on
your part.
A. Call options; put options.
B. Futures contracts; call options.
C. Forward contracts; futures contracts.
D. Put options; forward contracts.
47. The greater the variability of a currency, the ____ will be the premium of a call option on this currency, and the ____
will be the premium of a put option on this currency, other things equal.
A. Greater; lower.
B. Greater; greater.
C. Lower; greater.
D. Lower; lower.
48. When currency options are not standardized and traded over-the-counter, there is ____ liquidity and a ____ bid/ask
spread.
A. Less; narrower.
B. More; narrower.
C. More; wider.
D. Less; wider.
49. 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.
A. Greater; greater.
B. Greater; lower.
C. Lower; lower.
D. Lower; greater.
50. Assume that a 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 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
A. $1,562.50.
B. -$1,562.50.
C. -$1,250.00.
D. -$625.00.
51. Which of the following is true?
A. The futures market is primarily used by speculators while the forward market is primarily used for hedging.
B. The futures market is primarily used for hedging while the forward market is primarily used for speculating.
C. The futures market and the forward market are primarily used for speculating.
D. The futures market and the forward market are primarily used for hedging.
52. Which of the following is true?
A. Most forward contracts between firms and banks are for speculative purposes.
B. Most future contracts represent a conservative approach by firms to hedge foreign trade.
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C. The forward contracts offered by banks have maturities for only four possible dates in the future.
D. None of the above.
53. If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.
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 put.
54. If you expect the British pound to appreciate, you could speculate by ____ pound call options or ____ pound put
options.
A. Purchasing; selling.
B. Purchasing; purchasing.
C. Selling; selling.
D. Selling; purchasing.
55. Which of the following is correct?
A. The longer the time to maturity, the less the value of a currency call option, other things equal.
B. The longer the time to maturity, the less the value of a currency put option, other things equal.
C. The higher the spot rate relative to the exercise price, the greater the value of a currency put option, other
things equal.
D. The lower the exercise price relative to the spot rate, the greater the value of a currency call option, other
things equal.
56. Research has found that the options market is
A. Efficient before controlling for transaction costs.
B. Efficient after controlling for transaction costs.
C. Highly inefficient.
D. None of the above.
57. Assume no transactions costs exist for any futures or forward contracts. The price of British pound futures with a
settlement date 180 days from now will
A. Definitely be above the 180-day forward rate.
B. Definitely be below the 180-day forward rate.
C. Be about the same as the 180-day forward rate.
D. None of the above; there is no relation between the futures and forward prices.
58. Assume that a currency's spot and future prices are the same, and the currency's interest rate is higher than the U.S.
rate. The actions of U.S. investors to lock in this higher foreign return would ____ the currency's spot rate and ____
the currency's futures price.
A. Put upward pressure on; put upward pressure on.
B. Put downward pressure on; put upward pressure on.
C. Put upward pressure on; put downward pressure on.
D. Put downward pressure on; put downward pressure on.
59. A firm sells a currency futures contract, and then decides before the settlement date that it no longer wants to
maintain such a position. It can close out its position by
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.
60. If the spot rate of the euro increased substantially over a one-month period, the futures price on euros would likely
____ over that same period.
A. Increase slightly.
B. Decrease substantially.
C. Increase substantially.
D. Stay the same.
61. A U.S. firm is bidding for a project needed by the Swiss government. The firm will not know if the bid is accepted
until three months from now. The firm will need Swiss francs to cover expenses but will be paid by the Swiss
government in dollars if it is hired for the project. The firm can best insulate itself against exchange rate exposure by
A. Selling futures in francs.
B. Buying futures in francs.
C. Buying franc put options.
D. Buying franc call options.

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62. A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The
exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the
premium paid)?
A. $6,875,000.
B. $7,250,000.
C. $7,000,000.
D. $6,500,000.
E. None of the above.
63. If you purchase a straddle on euros, this implies that you
A. Finance the purchase of a call option by selling a put option in the euros.
B. Finance the purchase of a call option by selling a call option in the euros.
C. Finance the purchase of a put option by selling a put option in the euros.
D. Finance the purchase of a put option by selling a call option in the euros.
E. None of the above.
64. 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.)
A. $1.57; $1.57.
B. $1.63; $1.60.
C. $1.63; $1.57.
D. $1.57; $1.63.
65. The existing spot rate of the Canadian dollar is $.82. The premium on a Canadian dollar call option is $.04. The
exercise price is $.81. The option will be exercised on the expiration date if at all. If the spot rate on the expiration
date is $.87, the profit as a percent of the initial investment (the premium paid) is
A. 0 percent.
B. 25 percent.
C. 50 percent.
D. 150 percent.
66. 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 $1.65, your net profit per
unit is
A. -$.03.
B. -$.02.
C. -$.01.
D. $.02.
67. You purchase a put option on Swiss francs for a premium of $.02, with an exercise price of $.61. The option will not
be exercised until the expiration date, if at all. If the spot rate on the expiration date is $.58, your net profit per unit
is
A. -$.03.
B. -$.02.
C. -$.01.
D. $.01.
68. You are a speculator who sells a call option on Swiss francs for a premium of $.06, with an exercise price of $.64. The
option will not be exercised until the expiration date, if at all. If the spot rate of the Swiss franc is $.69 on the
expiration date, your net profit per unit, assuming that you have to buy Swiss francs in the market to fulfill your
obligation, is
A. -$.02.
B. -$.01.
C. $.01.
D. $.02.
69. 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 $.78 on the expiration date, your net profit per unit is
A. -$.08.
B. -$.03.
C. $.05.
D. -$.05.
70. European currency options can be exercised ____; American currency options can be exercised ____.
A. Any time up to the expiration date; any time up to the expiration date.
B. Any time up to the expiration date; only on the expiration date.
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C. Only on the expiration date; only on the expiration date.

D. Only on the expiration date; any time up to the expiration date.
71. Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken,
it could ____ to hedge the exchange rate risk on those exports.
A. Sell yen put options.
B. Buy yen call options.
C. Buy futures contracts on yen.
D. Sell futures contracts on yen.
72. 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
A. In the money.
B. Out of the money.
C. At the money.
D. At a discount.
73. A put option on British pounds has a strike (exercise) price of $1.48. The present exchange rate is $1.55. This put
option can be referred to as
A. In the money.
B. Out of the money.
C. At the money.
D. At a discount.
74. Which of the following is not an instrument used by U.S.-based MNCs to cover their foreign currency positions?
A. Forward contracts.
B. Futures contracts.
C. Options.
D. All of the above are instruments used to cover foreign currency positions.
75. When the futures price on euros is below the forward rate on euros for the same settlement date, astute investors
may attempt to simultaneously ____ euros forward and ____ euro futures.
A. Sell; sell.
B. Buy; sell.
C. Sell; buy.
D. Buy; buy.
76. When the futures price is equal to the spot rate of a given currency, and the foreign country exhibits a higher
interest rate than the U.S. interest rate, astute investors may attempt to simultaneously ____ the foreign currency,
invest it in the foreign country, and ____ futures in the foreign currency.
A. Buy; buy.
B. Sell; buy.
C. Buy; sell.
D. Buy; buy.
77. Which of the following would result in a profit of a euro futures contract when the euro depreciates?
A. Buy a euro futures contract; sell a futures contract after the euro has depreciated.
B. Sell a euro futures contract; buy a futures contract after the euro has depreciated.
C. Buy a euro futures contract; buy an additional futures contract after the euro has depreciated.
D. None of the above would result in a profit when the euro depreciates.
78. Which of the following is not true regarding options?
A. Options are traded on exchanges, never over-the-counter.
B. Similar to futures contracts, margin requirements are normally imposed on option traders.
C. Although commissions for options are fixed per transaction, multiple contracts may be involved in a
transaction, thus lowering the commission per contract.
D. Currency options can be classified as either put or call options.
79. A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) 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?
A. $74,000.
B. $84,000.
C. $75,000.
D. $85,000.
80. 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?
A. $33,600.
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B. $46,900.
C. $44,100.
D. $36,400.
81. 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?
A. No; -$0.01.
B. Yes; $0.01.
C. Yes; -$0.01.
D. Yes; $0.03.
82. Carl is an option writer. In anticipation of a depreciation of the British pound from its current level of $1.50 to $1.45,
he has written a call option with an exercise price of $1.51 and a premium of $.02. If the spot rate at the option's
maturity turns out to be $1.54, what is Carl's profit or loss per unit (assuming the buyer of the option acts
rationally)?
A. -$0.01.
B. $0.01.
C. -$0.04.
D. $0.04.
E. -$0.03.
83. Johnson, Inc., a U.S.-based MNC, will need 10 million Thai baht on August 1. It is now May 1. Johnson has negotiated
a non-deliverable forward contract with its bank. The reference rate is the baht's closing exchange rate (in $) quoted
by Thailand's central bank in 90 days. The baht's spot rate today is $.02. If the rate quoted by Thailand's central bank
on August 1 is $.022, Johnson will ____ $____.
A. Pay; 20,000.
B. Be paid; 20,000.
C. Pay; 2,000.
D. Be paid; 2,000.
E. None of the above.
84. If the observed put option premium is less than what is suggested by the put-call parity equation, astute
arbitrageurs could make a profit by ____ the put option, ____ the call option, and ____ the underlying currency.
A. Selling; buying; buying.
B. Buying; selling; buying.
C. Selling; buying; selling.
D. Buying; buying; buying.
85. 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.
A. Spot and exercise; exercise.
B. Spot and exercise; spot.
C. Exercise and spot; exercise.
D. Exercise and spot; spot.
86. 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.
A. Spot and exercise; exercise.
B. Spot and exercise; spot.
C. Exercise and spot; exercise.
D. Exercise and spot; spot.
87. Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66. The forward rate exhibits a
____ of ____.
A. Premium; about 6%.
B. Discount; about 6%.
C. Discount; about 6.45%.
D. Premium; about 6.45%.
88. Assume the spot rate of a currency is $.37 and the 90-day forward rate is $.36. The forward rate of this currency
exhibits a ____ of ____ on an annualized basis.
A. Discount; 11.11%.
B. Premium; 11.11%.
C. Premium; 10.81%.
D. Discount; 10.81%.
89. Which of the following are most commonly traded on an exchange?
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A. Forward contracts.
B. Futures contracts.
C. Currencies.
D. None of the above.
90. Conditional currency options are
A. Options that do not require premiums.
B. Options where the premiums are canceled if a trigger level is reached.
C. Options that allow the buyer to decide what currency the option will be settled in.
D. None of the above.
91. Which of the following is true regarding the options markets?
A. Hedgers and speculators both attempt to lower risk.
B. Hedgers attempt to lower risk, while speculators attempt to make riskless profits.
C. Hedgers and speculators are both necessary in order for the market to be liquid.
D. All of the above.
92. The premium of a currency put option will increase if
A. The volatility of the underlying asset goes up.
B. The time to maturity goes up.
C. The spot rate declines.
D. None of the above.
93. Which of the following is true of options?
A. The writer decides whether the option will be exercised.
B. The writer pays the buyer the option premium.
C. The buyer decides if the option will be exercised.
D. More than one of these.
94. The purchase of a currency put option would be appropriate for which of the following?
A. Investors who expect to buy a foreign bond in one month.
B. Corporations who expect to buy foreign currency to finance foreign subsidiaries.
C. Corporations who expect to collect on a foreign account receivable in one month.
D. All of the above.
95. If you have bought the right to sell, you are a
A. Call writer.
B. Put buyer.
C. Futures buyer.
D. Put writer.
96. If you have a position where you might be obligated to buy Euros, you are
A. A call writer.
B. A put writer.
C. A put buyer.
D. A futures seller.
97. Which of the following is true for futures, but not for forwards?
A. Actual delivery.
B. No transactions costs.
C. Self-regulation.
D. None of the above.
98. 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 $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now?
A. $44,500.
B. $45,000.
C. $526 million.
D. $47,500.
99. The spot rate for the Singapore dollar is $.588. The 30-day forward rate is $.590. The forward rate contains an
annualized ____ of ____%.
A. Discount; -4.07.
B. Premium; 4.07.
C. Discount; -4.08.
D. Premium; 4.08.
E. Premium; 3.40.

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