1) You live in the US. You plan to buy a car in three months in GBP. The price for the car will be 25,000. The spot exchange rate is $1.45/, and the three-month forward rate is $1.42/. You can also buy the three-month call option with an exercise price of $1.40/ for the premium of $0.10 per . The three-month interest rate is 6% per annum in the United States and 3% per annum in UK. At what future spot price will you be indifferent between the forward and option market hedges?

a) $0.7584 per $

b) $0.6572 per

c) $1.3185 per

d) 0.6572 per $

e) $1.5215 per

f) $1.4200 per

2) You just entered a futures contract to sell EUR50,000 at $1.15 per EUR. Your initial performance bond is $5,000 and your maintenance level is $1,500. At what settle price (exchange rate) will you receive a call for additional funds to be posted (margin call)?

a) $0.00 per EUR

b) $1.02 per EUR

c) $1.15 per EUR

d) $1.08 per EUR

e) $1.05 per EUR

f) $1.28 per EUR

g) $1.22 per EUR.

3) An investor purchases a put option on XYZ Corporation with a strike price of $55. The current market price of XYZ stock is $53, and the investor pays a premium of $7 for the put option. What is the time value of this option?

a) -$5.00.

b) $0.00.

c) $2.00.

d) $5.00.

e) -$2.00.

f) $7.00.

g) $9.00.

h) -$7.00.

4) Consider 10% USD/GBP dual-currency bonds that pay $1,500 at maturity per GBP1,000 of par value and has 5 years till maturity. If it sells at par, what is the implicit USD/GBP (USD for one unit of GBP) exchange rate at maturity? The notional value of the bond is GBP1,500.

a) $0.6666/GBP

b) $1.2500/GBP

c) $1.5000/GBP

d) $2.0000/GBP

e) $1.0000/GBP

f) $0.8000/GBP

5) A Canadian supplier is offering two options to his American client to pay for an equipment: paying 13,000 Canadian dollars now or paying 10,000 US dollars in 6 months. If the annual interest rate for the Canadian dollar is 5 % and for the US dollar is 8%, what is the "implied" exchange rate?

a) CAD 0.7581/USD

b) CAD 1.3190/USD

c) CAD 0.7505/USD

d) CAD 1.3520 /USD

e) CAD 1.3325/USD

f) CAD 0.7396/USD.

6) A US firm has 50,000 payable with a 6-month maturity to a British company. Which of the following will fully hedge your assets?

a) Buy a call option on 50,000 with a strike price in pounds.

b) Sell a put option on 50,000 with a strike price in dollars.

c) Buy a put option on $50,000 with a strike price in pounds.

d) Buy a call option on $50,000 with a strike price in pounds.

e) Buy a put option on 50,000 with a strike price in dollars.

f) Buy a call option on 50,000 with a strike price in dollars.