1. The current value of the New Zealand dollar (NZ$) is $0.83. Last year, it was $0.80. The New Zealand dollar:

a) Depreciated by 3.75%

b) Appreciated by 3.75%

c) Appreciated by 3.6%

d) Depreciated by 3.6%

e) None of the above

2. The spot rate between the U.S. dollar and the Japanese yen is 87.91. A year ago it was 77.73. The spot rate between the U.S. dollar and the euro is $1.31. A year ago it was $1.28. The dollar has:

Appreciated against both the yen and the euro

Depreciated against both the yen and the euro

Appreciated against the euro and depreciated against the yen

Depreciated against the euro and appreciated against the yen

None of the above

A speculator purchases a call option on British pounds. The option has a strike price of $1.55 and costs $.02 per unit. A pound option represents 31,250 units. The spot rate is $1.61, and decreases to $1.55 by expiration. Calculate the profit or loss on the option.

a) $1,875

b) -$1,875.00

c) $625.00

d) -$625.00

e) None of the above

3. American currency options can be exercised:

a) Any time up to the expiration date if the strike price is higher than the current price

b) Any time up to the expiration date if the strike price is lower than the current price

c) Any time up to the expiration date

d) Only on the expiration date

e) None of the above

4. A call option on British pounds has a strike price of $1.70. A put option also has a strike price of $1.70. The current exchange rate is $1.60. Which of the following statements is correct?

a) The call option is out of the money

b) The call option is in the money

c) Both the call option and the put option are at the money

d) The put option is less valuable than the call option

e) None of the above

5. Under a floating exchange rate system:

Under a floating exchange rate system:

a) A foreign exchange market does not exist

b) Central bank intervention in the foreign exchange market is not necessary

c) Central bank intervention in the foreign exchange market is required

d) One currency is pegged to a basket of currencies

e) None of the above

6. Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by:

a) Weakening the dollar

b) Strengthening the dollar

c) Increasing the reserve requirement

d) Passing legislation

e) None of the above

7. A call option on British pounds has a strike price of $1.70. A put option has a strike price of $1.65. The current exchange rate is $1.60. One option represents 31,250 pounds. Which of the following statements is correct?

a) The value of the put option is $1,562.50

b) The value of the call option is $3,125.00

c) The value of the put option is $0.00

d) The value of the call option is -$1,562.50

e) None of the above