QUESTION 10

1. If according to the law of one price the current exchange rate of dollars per British pound is $1.43/, then at an exchange rate of $1.48/, the dollar is ________.

		(a) overvalued
		(b) undervalued
		(c) correctly valued
		(d) unknown relative valuation

QUESTION 11

1. An option whose exercise price is equal to the spot rate is said to be:

		A) in-the-money.
		B) at-the-money.
		C) out-of-the-money.
		D) on-the-spot.

QUESTION 12

1. Which of the following would be considered an example of a currency swap?

		A) exchanging a dollar interest obligation for a British pound obligation.
		B) exchanging a eurodollar interest obligation for a dollar obligation.
		C) exchanging a eurodollar interest obligation for a British pound obligation.
		D) All of the above are examples of a currency swap.

QUESTION 13

1. The Economist publishes annually the "Big Mac Index" by which they compare the prices of the McDonald's Corporation's Big Mac hamburger around the world. The index estimates the exchange rates for currencies based on the assumption that the burgers in question are the same across the world and therefore, the price should be the same. If a Big Mac costs $2.54 in the United States and 294 yen in Japan, what is the estimated exchange rate of yen per dollar as hypothesized by the Hamburger index?

		A) $0.0086/
		B) 124/$
		C) $0.0081/
		D) 115.75/$

QUESTION 14

1. A put option on yen is written with a strike price of 105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

		A) 100/$
		B) 105/$
		C) 110/$
		D) 115/$

QUESTION 15

1. Assume the August call and put option on Swiss francs have the same strike price of 58 ($0.5850/SF), and premium of $0.005/SF. In what price range the purchase of the PUT option would choose to exercise the option?

		a) At all spot rates above the strike price of 58.5
		b) At the strike price of 58.5
		c) At all spot rates below the strike price of 58.5
		d) At all spot rates below the 59 (strike price of 58.5 plus the premium)