Exchange Rates Derivatives

Currency futures contracts sold on an exchange:

• contain a commitment to the owner, and are standardized.

• contain a commitment to the owner, and can be tailored to the

  desire of the owner.

• contain a right but not a commitment to the owner, and can be tailored to the desire of the owner.

• contain a right but not a commitment to the owner, and are standardized.

Forward contracts:

• contain a commitment to the owner, and are standardized.

• contain a commitment to the owner, and can be tailored to the desire of the owner.

• contain a right but not a commitment to the owner, and can be tailored to the desire of the owner.

• contain a right but not a commitment to the owner, and are standardized.

Currency options sold through an options exchange:

• contain a commitment to the owner, and are standardized.

• contain a commitment to the owner, and can be tailored to the

  desire of the owner.

• contain a right but not a commitment to the owner, and can be tailored to the desire of the owner.

• contain a right but not a commitment to the owner, and are

  standardized.

Trumpet Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Trumpet is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances?

• purchase Canadian dollars forward.

• purchase Canadian dollar futures contracts.

• purchase Canadian dollar put options.

• purchase Canadian dollar call options.

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.

• all of the above are appropriate strategies for the scenario described.

If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market.

• selling; selling

• selling; purchasing

• purchasing; purchasing

• purchasing; selling

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

Which of the following is correct?

• The longer the time to maturity, the less the value of a currency call option, other things equal.

• The longer the time to maturity, the less the value of a currency put option, other things equal.

• The higher the spot rate relative to the exercise price, the greater the value of a currency put option, other things equal.

• The lower the exercise price relative to the spot rate, the greater the value of a currency call option, other things equal.

Conditional currency options are:

• options that do not require premiums.

• options where the premiums are canceled before a trigger level is reached.

• options that allow the buyer to decide what currency the option

  will be settled in.

• none of the above

A European option can only be exercised at the expiration date, while an American option can be exercised any time prior to the expiration date.

• True

• False