A survey collects information from a group of customers at an amusement park. The following $($partial$)$ probability distribution is obtained for the random variable X $=$ the number of hours spent at the amusement park for one day.

Value of x

$4$

$5$

$6$

$7$

$8$

Probability

$0\mathrm{.}1$

$0\mathrm{.}15$

$0\mathrm{.}25$

$0\mathrm{.}07$

$0\mathrm{.}43$

What is the expected number of hours spent at an amusement park for a day?

a$.$

$6\mathrm{.}38$ days

b$.$

$6\mathrm{.}03$ days

c$.$

$6\mathrm{.}32$ days

d$.$

$6\mathrm{.}58$ days

e$.$

$6\mathrm{.}22$ days

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XYZ Corporation, a Canadian company, imports wine from California. XYZ Corporation has a payment obligation of USD $5,000,000$ that needs to be settled in $180$ days. $*$ St$,0=1\mathrm{.}35$ CAD$/$USD$.$ The XYZ forecasts the future spot rate in $180$ days as follows:

Possible Outcomes Probability

$1\mathrm{.}15$ CAD$/$USD $20\%$

$1\mathrm{.}30$ CAD$/$ USD $10\%$

$1\mathrm{.}40$ CAD$/$USD $30\%$

$1\mathrm{.}55$ CAD$/$USD $40\%$

Calculate the expected amount to be paid if XYZ Corporation decides not to hedge against the spot rate movement.

a$.$

$7\mathrm{.}000$M

b$.$

$6\mathrm{.}900$M

c$.$

$6\mathrm{.}350$M

d$.$

$3\mathrm{.}903$M

e$.$

$7\mathrm{.}050$M

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Please review the following conclusions and identify the one that is CORRECT.

a$.$

You expect the spot rate to decrease. Therefore, it is expensive to record accounts payable immediately using the forward rather than the spot rate.

b$.$

The forward rate is the certainty equivalent of the future spot rate. Therefore, the expected value of the future spot rate is the forward rate.

c$.$

The future spot rate is uncertain. Therefore, bidders to an international tender should be asked to submit prices in their home currency. Both parties can immediately hedge in the forward market.

d$.$

You expect the spot rate to increase. Therefore, it is more profitable to record accounts receivable using the spot rate rather than the forward rate.

e$.$

The forward rate is the certainty equivalent of the future spot rate. Therefore, the future spot rate is an unbiased basis for the forward rate when $(1)$ the market is efficient, $(2)$ there exist no transaction costs and $(3)$ no risk aversion.

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XYZ Corporation, a Canadian company, imports wine from California. XYZ Corporation has a payment obligation of USD $5,000,000$ that needs to be settled in $180$ days.

$*$ St$,0=1\mathrm{.}21$ CAD$/$USD$.$ Suppose the $90-$day forward rate is Ft$,90=1\mathrm{.}32$ CAD$/$USD$.$ Calculate the forward premium. Does the forward rate contain a premium or a discount?

a$.$

$53\mathrm{.}20\%$

b$.$

$37\mathrm{.}45\%$

c$.$

$33\mathrm{.}33\%$

d$.$

$54\mathrm{.}85\%$

e$.$

$36\mathrm{.}36\%$

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Future contracts are similar to forward contracts in that they represent a predetermined rate for a settlement that occurs in the future. Which of the following statements is TRUE about future contracts when compared to forward contracts?

a$.$

The contracts are not heavily regulated

b$.$

The market is more liquid

c$.$

The contracts are privately negotiated and flexible

d$.$

The contracts are settled at maturity

e$.$

The contracts involve no initial payment

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A put option gives the buyer the $\_\_\_\_\_\_$ to $\_\_\_\_\_\_$ the underlying asset at the exercise price within a specified period of time.

a$.$

right; buy

b$.$

None of the available options

c$.$

right; sell

d$.$

obligation; buy

e$.$

obligation; sell

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The amount paid upfront for an option is the

a$.$

premium

b$.$

in$-$the$-$Money $($ITM$)$

c$.$

strike price

d$.$

at$-$the$-$Money $($ATM$)$

e$.$

out$-$of$-$the$-$Money $($OTM$)$

Question $8$

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A market is in equilibrium if

a$.$

the quantity demanded is less than the quantity supplied and price begins fall

b$.$

the quantity demanded is greater than the quantity supplied and price begins to go up

c$.$

the quantity demanded is greater than the quantity supplied and price begins fall

d$.$

the quantity demanded is equal to the quantity supplied and the resulting price is stable

e$.$

the quantity demanded is less than the quantity supplied and price begins to go up

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Suppose that the quote for British pounds $($GBP$)$ in New York is $1\mathrm{.}3$ USD$/$GBP$.$ What would happen if the UK were to experience high growth relative to the US$.($Balance of Trade Approach$)$

a$.$

Demand goes up $($rightward shift in the demand$)$

b$.$

Supply goes down $($leftward shift in the supply$)$

c$.$

Demand goes down $($leftward