1. The premium on a pound put option is $.04 per unit. The exercise price is $1.60. The break-even point is ____ for the buyer of the put, and ____ for the seller of the put. (Assume zero transactions costs and that the buyer and seller of the put option are speculators.)

a. $1.56; $1.56

b. $1.64; $1.64

c. $1.64; $1.56

d. $1.56; $1.60

2. Under a freely floating exchange rate system

a. exchange rates remain very stable because of offsetting economic conditions.

b. central bank intervention in the foreign exchange market is often necessary.

c. central bank intervention in the foreign exchange market is not necessary.

3. The longer the time to the expiration date for a currency, the ____ will be the premium of a call option, and the ____ will be the premium of a put option, other things being equal.

a. lower; lower

b. greater; lower

c. greater; greater

d. lower; greater