Question 15

1. Currency options sold through an OTC market contain:

   		a commitment to the owner, and are standardized.
   		a commitment to the owner, and can be tailored to the owner if desire.
   		a right but not a commitment to the owner, and can be tailored to the owner if desire.
   		a right but not a commitment to the owner, and are standardized.

Question 16

1. An obligation to purchase a specific amount of currency at a specific exchange rate at a future point in time is called a:

   		call option
   		futures contract
   		put option
   		forward contract
   		both b and d

Question 17

1. The annualized forward premium on the euro is 7 percent. What is the forward rate on the euro if the spot rate today is $1.25?

   		$1.16
   		$1.34
   		$1.22
   		$1.43

0.6 points

Question 18

1. MNCs are not exposed to exchange rate risk even if they need to convert currencies occasionally.

   		True
   		False

Question 19

1. The one-year interest rate in Australia is 3 percent and in the United Kingdom is 2 percent. According to the international Fisher effect, the British pound's spot exchange rate should ____ by about ____ over the year.

   		depreciate; 1.9 percent
   		depreciate; 0.97 percent
   		appreciate; 1.9 percent
   		appreciate; 0.98 percent

Question 20

1. Griffith Ltd. is a Japan-based MNC that frequently imports raw materials from Australia. Griffith is typically invoiced for these goods in dollars and is concerned that the dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances?

   		Purchase dollars forward.
   		Purchase dollar futures contracts.
   		Purchase dollar call options.
   		Purchase dollar put options.

Question 21

1. When you own ____, there is no obligation to sell on your part; however, when you own ____, there is no obligation to purchase on your part.

   		call options; put options
   		forward contracts; futures contracts
   		put options; call options
   		call options; forward contracts

Question 22

1. Griffith Ltd., based in Brisbane, exports products to a French firm and will receive payment of EUR175,000 in six months. Today, the spot rate of the euro was $1.40, and the 6-month forward rate was $1.45. The company enters a forward contract to sell EUR175,000 forward in six months. The spot rate of the euro on the forward expiry date is $1.25. How much AUD would Griffith receive?

   		245,000
   		218,750
   		175,000
   		253,750

Question 23

1. A forward rate for a currency is said to exhibit a discount if:

   		the forward rate exceeds the existing spot rate.
   		the forward rate is less than the existing spot rate.
   		the forward rate exceeds the expected future spot rate.
   		the forward rate is less than the expected future spot rate.
   		None of these are correct.

Question 24

1. An Australian corporation has purchased currency call options to hedge a 60,000 euro (EUR) payable. The premium is $0.05 and the exercise price of the option is $1.40. If the spot rate at the time of maturity is $1.45, what is the total amount paid by the corporation if it acts rationally?

   		$90,000
   		$67,000
   		$84,000
   		$87,000

Question 25

1. Which of the following is a factor that affects the bid/ask spread?

   		number of banks possessing the currency
   		inventory costs
   		perception of commercial banks on the supply/demand balance of the currency
   		The bid/ask spread may be affected by all of the above

Question 26

1. The forward market:

   		for euros is very illiquid.
   		for currencies of Eastern European countries is very liquid.
   		does not exist for some currencies.
   		None of these are correct.

Question 27

1. The forward rate is commonly used for:

   		hedging.
   		immediate transactions.
   		previous transactions.
   		bond transactions.