FIN 4604 EXAM 2. ALL EXAM 2 REVISION QUESTIONS AND CORRECT ANSWERS (ALREADY GRADED A+) (2024 UPDATE)
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Course
FINC - Finance
Institution
FINC - Finance
FIN 4604 EXAM 2. ALL EXAM 2 REVISION QUESTIONS AND CORRECT ANSWERS
(ALREADY GRADED A+) (2024 UPDATE).
A bill of exchange requesting a bank to pay the face amount at a future date is a: - ANSWERb. Time draft.
An exchange of goods between two parties under two distinct contracts expressed in mon...
FIN 4604 EXAM 2. ALL EXAM 2 REVISION QUESTIONS AND CORRECT ANSWERS
(ALREADY GRADED A+) (2024 UPDATE)
A bill of exchange requesting a bank to pay the face amount at a future date is a: - ANSWER-
b. Time draft.
An exchange of goods between two parties under two distinct contracts expressed in monetary
terms are: - ANSWER- b. Counter purchase.
Who bears the payment risk in a letter of credit? - ANSWER- e. Both c and d.
A banker's acceptance is a draft drawn on and accepted by ________. - ANSWER- a. A bank
Derivatives are used in the following ways except: - ANSWER- f. None of the above
Which of the following is not true concerning regulation of derivatives in the U.S.? - ANSWER-
e. None of the above
Which of the following is not a feature of the forward market? - ANSWER- e. Contracts usually
reversed prior to maturity
Which of the following is not a feature of the futures market? - ANSWER- d. Credit risk borne
by counterparties.
Unlike the ________; __________ are traded on organized exchanges and are marked to the
market. - ANSWER- d. Forwards; Futures
Similar to the ________; __________ are agreements embodying obligation to buy or sell an asset
or commodity for future delivery and settlement. - ANSWER- a. Forwards; Futures
,The following is not a technique used to eliminate transaction exposure by multinational firms. -
ANSWER- a. Index
Assume that IRP holds. The U.S. five-year interest rate is 5% per year while the Mexican five-year
rate is 8% per year. If today's spot rate of the peso is $.20, obtain the approximate 5-year forecast
of the peso's spot rate using the 5-year forward rate. - ANSWER- e. $.174
Assume today that the U.S. five-year interest rate is 5% per year while the Mexican five-year rate
is 8% per year. Assume also that the peso's five year forward rate is $.25. What is today's spot rate
of the peso at which interest rate parity holds? - ANSWER- e. None of the above
If interest rate parity holds and the forward rate is expected to be an unbiased estimate (predictor)
of the future spot rate, then:
a. Covered interest arbitrage is feasible
b. International Fisher Equation holds
c. Purchasing power parity holds
d. Absolute forecast error would be zero - ANSWER- b. International Fisher Equation holds
Call and put options premiums are affected by the level of existing spot price relative to the strike
price. A ____ spot price relative to the strike price results in relatively ____ premium for a call
option but a relatively ____ premium for a put option.
a. High; High; Low
b. High; Low; High
c. Low; High; High
, d. Low; Low; Low
e. High; High; High - ANSWER- a. High; High; Low
Call and put options premiums are affected by the level of existing spot price relative to the strike
price. A ____ spot price relative to the strike price results in relatively ____ premium for a call
option but a relatively ____ premium for a put option.
a. High; Low; High
b. Low; High; High
c. Low; Low; High
d. Low; Low; Low
e. High; High; High - ANSWER- c. Low; Low; High
A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$)
receivable. The premium is $.02 per unit and the exercise price of the option is $.94. If the spot
rate at the time of maturity is $.99, what is the net amount received by the corporation if it acts
rationally?
a. $92,000. b. $97,000. c. $96,000. d. $94,000. - ANSWER- b. $97,000
A U.S. corporation has purchased currency call options to hedge a ₤70,000 payable. The premium
is $.02 [.05] and the exercise price of the option is $.50 [$1.50]. If the spot rate at the time of
maturity is $.65 [$1.65], what is the total amount paid by the corporation if it acts rationally?
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