Currency Derivatives

Graylon, Inc., based in Washington, exports products to a German firm and will receive payment of €200,000 in three months. On June1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, Graylon negotiated a forward contract with a bank to sell €200,000 forward in three months.The spot rate of the euroon September 1 is $1.15. Graylon will receive $_________ for the euros.

• 224,000
• 220,000 
• 200,000     
• 230,000

The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward ________ is _______ percent.

•  discount; 1.8  
• discount; 1.9
• premium; 1.9
• premium; 1.8

Currency futures contracts sold on an exchange:    

• A)  contain a commitment to the owner, and are standardized. 
• B)  contain a commitment to the owner, and can be tailored to the desire of the owner. 
• C)  contain a right but not a commitment to the owner, and can be tailored to the desire of the owner. 
• D)  contain a right but not a commitment to the owner, and are standardized.

When you own _______, there is no obligation on your part; however, when you own _______, there is an obligation on your part.

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

The greater the variability of a currency, the _______ will be the premium of a call option on this currency

• greater
• lower

Which of the following is the most likely strategy for a U.S. firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)?

•  purchase a call option on francs.
• sell a futures contract on francs.
• obtain a forward contract to purchase francs forward.
• No right answer