Part 1 Multiple Choice Questions (30 Marks/2'Each) American Terms European Terms Bank Quotation Rid Ask Bid Ask Bash pounde S 1971251.9717 20.5072 0.5073 Euro 51.473851.4742 0.6783 6 0.6785 Using the table above, what is the bid price of pounds in terms of euro? 1.3371/ 1.3378/ 0.7475/8 0.7479 Using the table above, what is the ask price of pounds in terms of euro? 1.3371/ B. 1.3378/ C. 0.7475/ D. 0.7479/ 3. Suppose you observe the following exchange rates: 1 -5.85; 1 = $1.60; and 2.00 - 1.00. Starting with $1,000,000, how can you make money? A. Exchange Slm for 625,000 at 1 = $1.60. Buy 1,250,000 at 2 - 1.00; trade for $1,062,500 at 1 = $.85. B. Start with dollars, exchange for euros at 1 = $.85; exchange for pounds at 2.00 = 1.00; exchange for dollars at 1 = $1.60. Start with euros; exchange for pounds; exchange for dollars; exchange for euros. D. No arbitrage profit is possible. 4 The The forward price may be higher than the spot price. may be the same as the spot price. may be less than the spot price. all of the above B. 5. The S/CD spot bid-ask rates are $0.7560-$0.7625. The 3-month forward points are 12-16. Determine the $/CD 3-month forward bid-ask rates. A. $0.7548-$0.7609 $0.7572-$0.7641 $0.7512-$0.7616 cannot be determined with the information given The current sell E100,000. What actions would you take to se e in the forward a How much will you make if your prediction is com ? Take a short position in a forward. If y o u will make SAS B. Take a long position in a forward contact on your de you will make $5,000. Take a short position in a forward contact n o. If you how make $5,000 D. Take a long position in a forward contract on youre you will $15,000 c. A. 7. The International Fisher Effect suggests that any forward premium or discount is equal to the expected change in the exchange rate. B. any forward premium or discount is equal to the actual change in the exchange rate. C. the nominal interest rate differential reflects the expected change in the exchange rate. D. an increase (decrease) in the expected inflation rate in a country will cause proportionate increase (decrease) in the interest rate in the country. 8. Yesterday, you entered into a futures contract to buy 62,500 at $1.50 per . Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted? A. B. $1.5160 per . $1.208 per . $1.1920 per . $1.4840 per . D. 9. From the perspective of the writer of a put option written on 62,500. If the strike price is $1.55/, and the option premium is $1,875, at what exchange rate do you start to lose money? A. $1.52/ $1.55/ $1.58/ D. None of the above Part 1 Multiple Choice Questions (30 Marks/2'Each) American Terms European Terms Bank Quotation Rid Ask Bid Ask Bash pounde S 1971251.9717 20.5072 0.5073 Euro 51.473851.4742 0.6783 6 0.6785 Using the table above, what is the bid price of pounds in terms of euro? 1.3371/ 1.3378/ 0.7475/8 0.7479 Using the table above, what is the ask price of pounds in terms of euro? 1.3371/ B. 1.3378/ C. 0.7475/ D. 0.7479/ 3. Suppose you observe the following exchange rates: 1 -5.85; 1 = $1.60; and 2.00 - 1.00. Starting with $1,000,000, how can you make money? A. Exchange Slm for 625,000 at 1 = $1.60. Buy 1,250,000 at 2 - 1.00; trade for $1,062,500 at 1 = $.85. B. Start with dollars, exchange for euros at 1 = $.85; exchange for pounds at 2.00 = 1.00; exchange for dollars at 1 = $1.60. Start with euros; exchange for pounds; exchange for dollars; exchange for euros. D. No arbitrage profit is possible. 4 The The forward price may be higher than the spot price. may be the same as the spot price. may be less than the spot price. all of the above B. 5. The S/CD spot bid-ask rates are $0.7560-$0.7625. The 3-month forward points are 12-16. Determine the $/CD 3-month forward bid-ask rates. A. $0.7548-$0.7609 $0.7572-$0.7641 $0.7512-$0.7616 cannot be determined with the information given The current sell E100,000. What actions would you take to se e in the forward a How much will you make if your prediction is com ? Take a short position in a forward. If y o u will make SAS B. Take a long position in a forward contact on your de you will make $5,000. Take a short position in a forward contact n o. If you how make $5,000 D. Take a long position in a forward contract on youre you will $15,000 c. A. 7. The International Fisher Effect suggests that any forward premium or discount is equal to the expected change in the exchange rate. B. any forward premium or discount is equal to the actual change in the exchange rate. C. the nominal interest rate differential reflects the expected change in the exchange rate. D. an increase (decrease) in the expected inflation rate in a country will cause proportionate increase (decrease) in the interest rate in the country. 8. Yesterday, you entered into a futures contract to buy 62,500 at $1.50 per . Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted? A. B. $1.5160 per . $1.208 per . $1.1920 per . $1.4840 per . D. 9. From the perspective of the writer of a put option written on 62,500. If the strike price is $1.55/, and the option premium is $1,875, at what exchange rate do you start to lose money? A. $1.52/ $1.55/ $1.58/ D. None of the above