Foreign Currency Derivatives: Futures And Options

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Question 1
Free
Multiple Choice

Financial derivatives are powerful tools that can be used by management for purposes of:

Choose correct answer/s
A

speculation.

B

hedging.

C

human resource management.

D

A and B above

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Question 2
Free
Multiple Choice

A foreign currency ________ contract calls for the future delivery of a standard amount of foreign exchange at a fixed time, place, and price.

Choose correct answer/s
A

futures

B

forward

C

option

D

swap

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Question 3
Free
Multiple Choice

Which of the following is NOT a contract specification for currency futures trading on an organized exchange?

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A

size of the contract

B

maturity date

C

last trading day

D

All of the above are specified.

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Question 4
Free
Multiple Choice

About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller.

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A

0%

B

5%

C

50%

D

95%

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Question 5
Free
Multiple Choice

Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a:

Choose correct answer/s
A

collateralized deposit.

B

marked market sum.

C

margin.

D

settlement.

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Question 6
Multiple Choice

A speculator in the futures market wishing to lock in a price at which they could ________ a foreign currency will ________ a futures contract.

Choose correct answer/s
A
buy; sell
B
sell; buy
C
buy; buy
D
none of the above
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Question 7
Multiple Choice

A speculator that has ________ a futures contract has taken a ________ position.

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A
sold; long
B
purchased; short
C
sold; short
D
purchased; sold
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Question 8
Multiple Choice

Peter Simpson thinks that the U.K. pound will cost $1.43/£ in six months. A 6-month currency futures contract is available today at a rate of $1.44/£. If Peter was to speculate in the currency futures market, and his expectations are correct, which of the following strategies would earn him a profit?

Choose correct answer/s
A
Sell a pound currency futures contract.
B
Buy a pound currency futures contract.
C
Sell pounds today.
D
Sell pounds in six months.
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Question 9
Multiple Choice

Jack Hemmings bought a 3-month British pound futures contract for $1.4400/£ only to see the dollar appreciate to a value of $1.4250 at which time he sold the pound futures. If each pound futures contract is for an amount of £62,500, how much money did Jack gain or lose from his speculation with pound futures?

Choose correct answer/s
A
$937.50 loss
B
$937.50 gain
C
£937.50 loss
D
£937.50 gain
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Question 10
Multiple Choice

Which of the following statements regarding currency futures contracts and forward contracts is NOT true?

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A
A futures contract is a standardized amount per currency whereas the forward contact is for any size desired.
B
A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year.
C
Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages.
D
All of the above are true.
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Question 11
Multiple Choice

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

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A
The futures contract is marked to market daily, whereas the forward contract is only due to be settled at maturity.
B
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.
C
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.
D
All of the above are true.
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Question 12
Multiple Choice

Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. Jasper should ________ at ________ to profit from changing currency values.

Choose correct answer/s
A
buy yen; the forward rate
B
buy dollars; the forward rate
C
sell yen; the forward rate
D
There is not enough information to answer this question.
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Question 13
Multiple Choice

Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$, he will earn a profit of:

Choose correct answer/s
A
$146.09.
B
$101,460.94.
C
$1460.94.
D
nothing; he will lose money
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Question 14
Multiple Choice

Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper buys $100,000 worth of yen at today's spot price her potential gain is ________ and her potential loss is ________ .

Choose correct answer/s
A
$100,000; unlimited
B
unlimited; unlimited
C
$100,000; $100,000
D
unlimited; $100,000
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Question 15
Multiple Choice

Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper's expectations are correct, then he could profit in the forward market by ________ and then ________ .

Choose correct answer/s
A
buying yen for ¥128.00/$; selling yen at ¥128.53/$
B
buying yen for ¥128.53/$; selling yen at ¥128.00/$
C
There is not enough information to answer this question.
D
He could not profit in the forward market.
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Question 16
True/False

Currency futures contracts have become standard fare and trade readily in the world money centers.

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True
False
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Question 17
True/False

The major difference between currency futures and forward contracts is that futures contracts are standardized for ease of trading on an exchange market whereas forward contracts are specialized and tailored to meet the needs of clients.

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True
False
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Question 18
Essay

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?

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Question 19
Multiple Choice

A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

Choose correct answer/s
A
future
B
forward
C
option
D
swap
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Question 20
Multiple Choice

A foreign currency ________ option gives the holder the right to ________ a foreign currency, whereas a foreign currency ________ option gives the holder the right to ________ an option.

Choose correct answer/s
A
call, buy, put, sell
B
call, sell, put, buy
C
put, hold, call, release
D
none of the above
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