Fin 582 Chapter 5 Quiz Questions with Correct Answers

Fin 582 Chapter 5 Quiz Questions with Correct Answers The one-year forward rate of the British pound is quoted at $1.50, and the spot rate of the British pound is quoted at $1.515. The forward ____ is ____ percent. a. discount; 1.0 b. discount; 1.5 c. premium; 1.5 d. premium; 1.0 - Answer-a. discount; 1.0 Forward contracts contain a. a right but not a commitment to the owner, and can be tailored to the owner's desire. b. a commitment to the owner, and can be tailored to the owner's desire. c. a commitment to the owner, and are standardized. d. a right but not a commitment to the owner, and are standardized. - Answer-b. a commitment to the owner, and can be tailored to the owner's desire. Which of the following is the least likely 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. 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. - Answer-b. Sell a futures contract on francs. If your firm expects the euro to substantially appreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market. a. selling; selling b. purchasing; selling c. selling; purchasing d. purchasing; purchasing - Answer-d. purchasing; purchasing When you own ____, there is an obligation on your part; however, when you own ____, there is no obligation on your part. a. forward contracts; futures contracts b. futures contracts; call options c. call options; put options d. call options; forward contracts - Answer-b. futures contracts; call options The lower 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 being equal. a. greater; greater b. lower; lower c. lower; greater d. greater; lower - Answer-b. lower; lower