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INTERNATIONAL FINANCE

Assignment Problems (6) Name: Student#:

I. Choose the correct answer for the following questions (only ONE correct answer) (3 credits for each question, total credits 3 x 20 = 60)

1. Which of the following is NOT true regarding forward contracts? A. The maturity of forward contracts is flexible.

B. Forward contracts are traded both on organized exchanges and OTC market. C. Forward contracts are used to speculate the discrepancies of the exchange rates.

D. The size of a forward contract is usually much larger than that of the futures or options.

2. Which of the following is NOT a contract specification for currency futures trading on an organized exchange? A. maturity date

B. maintenance margin requirement C. size of the contract

D. All of the above are specified

3. A futures contract is very similar to a forward contract, because __________.

A. both are agreements between two parties to deliver relative currencies at a certain time for a certain price

B. both are standardized contracts

C. both can be used to eliminate the default risk

D. both are required to physically deliver the underlying currency

4. If the amount in the margin account drops below the maintenance margin, the futures contract holder will __________. A. close out the contract B. be issued a margin call C. write a new contract D. notify the exchange

5. Which of the following is NOT a difference between a currency futures contract and a forward contract?

A. The counterparty to the futures participant is unknown with the clearinghouse stepping into each transaction whereas the forward contract participants are in direct contact setting the forward specifications.

B. A single sales commission covers both the purchase and sale of a futures contract whereas there is no specific sales commission with a forward contract because banks earn a profit through the bid-ask spread.

C. The futures contract is marked to market daily whereas a forward contract is only due to be settled at maturity.

D. All of the above are differences between a currency futures contract and a forward contract. 精品文档

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6. Assume that Citibank in New York quotes a 30-day forward rate on euro of $0.7533 while the Singapore International Monetary Exchange (SIMEX) euro futures for delivery in 30 days is being quoted at $0.7522. You can make a riskless profit by __________.

A. taking a short position on euro in SIMEX euro futures contract and a long position on euro in the forward contract

B. taking a long position on euro in SIMEX euro futures contract and a short position on euro in the forward contract

C. taking a short position on dollar in SIMEX euro futures contract and a short position on dollar in the forward contract

D. taking a long position on dollar in SIMEX euro futures contract and a long position on dollar in the forward contract

7. The main function of the “Marking to market” procedure comes down to __________. A. avoid default risk inherent in forward contracts

B. cover risk exposure arisen from the international transactions C. protect the contract holders from suffering the loss D. all of the above

8. The buyer of a futures contract is required to put a sum of money in the exchange. This sum of money is called __________. A. down payment B. initial margin C. premium D. commission

9. When reading the futures quotation in the newspaper, the column heading indicating the number of contracts outstanding on the previous day is called __________. A. percentage change B. settle

C. open interest D. estimated volume

10. A put option on Japanese yen is written with a strike price of ￥ 88/$. Which of the following spot rate maximizes your profit if you choose to execute the contract before maturity? A. ￥70/$ B. ￥80/$ C. ￥90/$ D. ￥100/$

11. The agreed price in a currency option contract is called the __________. A. forward price B. futures price C. exercise price D. spot price 精品文档

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12. For a currency put option if the future spot rate is above the strike price, the option is said to be __________. A. in-the-money B. at-the-money C. out-of-the-money D. break-even

13. The writer of an option contract has __________ whereas the holder has __________. A. obligation; choice B. right; responsibility C. choice; obligation D. priority; privilege

14. Assume you bought a call option with the exercise price of $1.55/? in Chicago Mercantile Exchange on September 6. The contract would be expired in December. If the spot exchange rate was $1.50/? on October 10, the intrinsic value of this call option on that day would be __________. A. $0.05 B. -$0.05 C. $0

D. None of the above, because the contract doesn’t expire on October 10.

15. The foreign-currency accounts payable can be hedged by buying a __________ option on the foreign currency, whereas accounts receivable can be hedged by buying a __________ option on the foreign currency. A. call; put B. put; call

C. American; European D. European; American

16. Mr. Bull tries to speculate on the direction of the entire stock market, the most efficient method he should use is to acquire __________. A. a stock index futures

B. a portfolio containing stocks of all traded companies C. a currency forward contract D. a currency futures contract

17. The amount that the option purchaser must pay to obtain an option contract may be described as option __________. A. cost B. premium C. price

D. All of the above 精品文档