A call option on euros is written with a strike price of $1.30/euro.

Which spot price

maximizes your profit if you choose to exercise the option before maturity?
Select one:
a. $1.20/euro
b. $1.30/euro
c. $1.25/euro
d. $1.35/euro
Correct
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The correct answer is: $1.35/euro

Question 2
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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.
Select one:
a. call, buy, put, sell
Correct

b. call, sell, put, buy

c. put, hold, call, release

d. none of the above

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The correct answer is: call, buy, put, sell

Question 3
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Question text

A put option on yen is written with a strike price of ¥105.00/$. Which spot price
maximizes your profit if you choose to exercise the option before maturity?
Select one:
a. ¥105/$
b. ¥110/$
c. ¥100/$
d. ¥115/$
Correct
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The correct answer is: ¥115/$

Question 4
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As a general statement, it is safe to say that businesses generally use the ________ for
foreign currency option contracts, and individuals and financial institutions typically use
the ________.
Select one:
a. government sponsored; private
b. over-the-counter; exchange markets
Correct

c. exchange markets; over-the-counter

d. private; government sponsored

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The correct answer is: over-the-counter; exchange markets

Question 5
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As an option moves further out-of-the-money, delta moves toward ______.

Select one:
a. 1
b. -1
c. large negative numbers
d. 0
Correct
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The correct answer is: 0

Question 6
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For a $1.50/£ call option with an initial premium of $0.033/£ and a lambda of 0.4, after
an increase in annual volatility of 1 percent point - for example from 10% to 11% - the
new optiom premium would be:
Select one:
a. $0.037/£.
Correct

b. $0.036/£.
c. $0.004/£.

d. $1.54/£.
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The correct answer is: $0.037/£.

Question 7
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Option premiums deteriorate at an/a __________ as they approach expiration.

Select one:
a. decreasing rate
b. proportional
c. increasing rate
Correct

d. less than proportional rate

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The correct answer is: increasing rate

Question 8
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The buyer (long) of a put option:

Select one:
a. has a gain equal to but opposite in sign to the writer of the option.
b. all of the above
Correct

c. has maximum gain potential limited to the difference between the strike price and the
premium paid.

d. has a maximum loss equal to the premium paid.

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The correct answer is: all of the above

Question 9
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The buyer of a long call option:

Select one:
a. has a gain equal to but opposite in sign to the writer of the option.
b. has an unlimited maximum gain potential.
c. has a maximum loss equal to the premium paid.
d. all of the above
Correct
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The correct answer is: all of the above

Question 10
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The Delta of an option is defined as:

Select one:
a. expected change in the option premium for a small change in the spot rate.
Correct

b. expected change in the option premium for a small change in volatility.

c. expected change in the option premium for a small change in the domestic interest
rate.

d. expected change in the option premium for a small change in time to expiration.
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The correct answer is: expected change in the option premium for a small change in the
spot rate.
Question 11
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Which of the following is NOT a factor in determining the premium price of a currency
option?
Select one:
a. the standard deviation of the daily spot price movement
b. the present spot rate
c. All of the above are factors in determining the premium price.
Correct

d. the time to maturity

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The correct answer is: All of the above are factors in determining the premium price.

Question 12
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A ________ is an exchange rate quoted today for settlement at some time in the future.
Select one:
a. yield curve
b. currency rate
c. spot rate
d. forward rate
Correct
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The correct answer is: forward rate

Question 13
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A country's currency that strengthened relative to another country's currency by more

than that justified by the differential in inflation is said to be ________ in terms of PPP.
Select one:
a. undervalued
b. overvalued
Correct

c. under compensating

d. over compensating
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The correct answer is: overvalued

Question 14
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Assume a nominal interest rate on one-year U.S. Treasury Bills of 2.60% and a real rate
of interest of 1.00%. Using the Fisher Effect Equation, what is the approximate
expected rate of inflation in the U.S. over the next year?
Select one:
a. 2.10%
b. 1.60%
Correct

c. 1.00%

d. 2.05%
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The correct answer is: 1.60%

Question 15
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If share price rises from $12 to $15 per share, and pays a dividend of $1 per share, what
was the rate of return to shareholders?
Select one:
a. 33.33%
Correct

b. 16.67%
c. 26.67%

d. -13.33%
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The correct answer is: 33.33%

Question 16
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TABLE 5.1
Use the table to answer following question(s).

Refer to Table 5.1. The current spot rate of dollars per pound as quoted in a newspaper
is ________ or ________.
Select one:
a. $1.4481/£; £0.6906/$
b. £1.4484/$; $0.6904/£
c. $1.4484/£; £0.6904/$
Correct

d. £1.4487/$; $0.6903/£
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The correct answer is: $1.4484/£; £0.6904/$

Question 17
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TABLE 5.1
Use the table to answer following question(s).

Refer to Table 5.1. The one-month forward bid price for dollars as denominated in
Japanese yen is:
Select one:
a. -¥20.
b. -¥18.
c. ¥129.74/$.
d. ¥129.62/$.
Correct
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The correct answer is: ¥129.62/$.

Question 18
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Question text

TABLE 5.1
Use the table to answer following question(s).

Refer to Table 5.1. The ask price for the two-year swap for a British pound is:
Select one:
a. -$230.
b. $1.4257/£.
Correct

c. -$238.

d. $1.4250/£.
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The correct answer is: $1.4257/£.

Question 19
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TABLE 5.1
Use the table to answer following question(s).

Refer to Table 5.1. According to the information provided in the table, the 6-month yen
is selling at a forward ________ of approximately ________ per annum. (Use the mid
rates to make your calculations.)
Select one:
a. discount; 2.06%
b. discount; 2.09%
c. premium; 2.09%
Correct
d. premium; 2.06%
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The correct answer is: premium; 2.09%

Question 20
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One year ago the spot rate of U.S. dollars for Canadian dollars was $1/C$1. Since that
time the rate of inflation in the U.S. has been 4% greater than that in Canada. Based on
the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Canadian
dollars should be approximately:
Select one:
a. $1.04/C$.
Correct

b. $0.96/C$.
c. $1/C$.

d. Relative PPP provides no guide for this type of question.

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The correct answer is: $1.04/C$.

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