Question
38) Assume that a call option has an exercise price of $1.50/. At a spot price of $1.45/, the call option has ________. A) a
38) Assume that a call option has an exercise price of $1.50/. At a spot price of $1.45/, the call option has ________. A) a time value of $0.04. B) an intrinsic value of -$0.04. C) a time value of $0.00. D) an intrinsic value of $0.00. 39) The maximum gain for the purchaser of a call option contract is ________ while the maximum loss is ________. A) the premium paid; unlimited. B) unlimited; the premium paid. C) unlimited; the value of the underlying asset. D) unlimited; unlimited. 40) Which of the following is NOT true for the writer of a call option? A) The gain or loss is equal to but of the opposite sign of the buyer of a call option. B) The maximum loss is unlimited. C) The maximum gain is unlimited. D) All of the above are true. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 41) The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder. 42) Foreign currency options are available both over-the-counter and on organized exchanges. 43) Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is 129.87/$ and the 6-month forward rate is 128.53/$. Andrea would earn a higher rate of return by buying yen and a forward contract than if she had invested her money in 6-month US Treasury securities at an annual rate of 2.50%. 44) Other things equal, the price of an option goes up as the volatility of the option decreases. 45) Which of the following is NOT a factor in determining the premium price of a currency option? A) The standard deviation of the daily spot price movement. B) The time to maturity. C) The present spot rate. D) All of the above are factors in determining the premium price. 46) The ________ of an option is the value if the option were to be exercised immediately. It is the options ________ value. A) time value; maximum B) intrinsic value; maximum C) intrinsic value; minimum D) time value; minimum 47) Assume that a call option has an exercise price of $1.50/. At a spot price of $1.45/, the call option has ________. A) an intrinsic value of $0.00. B) an intrinsic value of -$0.04. C) a time value of $0.04. D) a time value of $0.00. 48) The single largest interest rate risk of a firm is ________. A) accounts payable B) debt service C) dividend payments D) interest sensitive securities 49) The most widely used reference rate for standardized quotations, loan agreements, or financial derivative valuations is the ________. A) federal funds rate B) LIBOR C) Federal Reserve Discount rate D) one-year U.S. Treasury Bill 50) LIBOR is an acronym for A) Least Interest Bearing: Official Rate. B) Latest Interest Being Offered Rate. C) London Interbank Offered Rate. D) Large International Bank Offered Rate.
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