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| The Overwhelming majority of foreign exchange transactions involve: |
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| C. Banks buying and selling foreign exchange |
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| The world's largest currency trading market is located in the city of |
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| A _______ between a bank and a customer calls for a fixed delivery date, at a fixed exchange rate, for a specified amount of one currency against another currency payment |
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Term
| The spot and 30-day foward rates for the Dutch guilder are $.3085 and $.3115, respectively the guilder is said to be selling at a forward |
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Term
| With respect to the currency futures market, the number of contracts outstanding at any one time is called the |
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Term
| Which of the followin would be considered a "money market instrument"? |
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Term
| Major advantages of currency futures contracts include |
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Definition
| freedom to liquidate the contract at anytime before maturity |
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Term
| The major disadvantage of forward and future contracts relative to options is that the forwards and future contracts |
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Definition
| d. eliminate the possibility of gaining a windfall profit from favorable movements in exchange rates |
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Term
| Suppose the current spot rate for the SFr is $0.7627. a call option with an excerise price of $0.7550 is said to be |
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Definition
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Term
| Suppose the current spot rate for the SFr is $0.7627. a put option with an exercise price of $.7550 is said to be |
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Term
| The basic differences between forwards and future contracts is that |
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Definition
-Forward contracts are individually tailored while future contracts are standardized
-forward contracts are negotiated with banks whereas futures contracts are bought and sold on an organized exchange
-forward contracts have no daily limits on price fluctuations whereas futures contracts have a daily limit on price fluctuations
-All the above |
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Term
| A _______ involves simultaneously borrowing and lending activities in two different curriencies to look in the currency's value of a future foreign currency cash flow |
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Term
| Compaq computer has $1 million recieviable tht it expects to collect in one year. Suppose interest rate on the pounds is 8%. How could compaq protect this receiviable using a money market hedge? |
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Definition
| c.) Lend $925,926 Pounds today |
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Term
| A japanese firm sells TV sets to an american importer for one billion yen payable in 90 days. To protect against exchange risk, the importer could? |
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Definition
| d.) Buy a futures contract for yen on the IMM |
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Term
| During most of 2006-10, the relationship between the US monthly trade deficits and foreign capital flows into the US has been: |
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Definition
| a.) Monthly trade deficits have exceeded foreign capital flows |
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Term
| Volkswagen (USA) and one of its suppliers enter into a contract that contains a price adjustment clause for the purpose of sharing exchange rate risk. The base price of the contract is 1 Euro- $1.50, and the neutral zone is specified as $1.46-$1.54. If the spot price of the Euro on the contract date is $1.40 the actual value used in the settlement will be: |
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Definition
B.) $1.47
$1.46-$1.40=.06/2= .03
1.50 -.03 =$1.47 |
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Term
| The spot and 180-day forward rates for the Japanese yen are $.008225 and $.008421, respectivly. the yen is said to be selling at forward. |
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Definition
Premium of 4.766%
(.008421-.008225/.008225)x 360/180=
spot .008225<.008412=Premium |
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Term
| Suppose the current spot rate for the SFr is $1.0302. A call option exercise price of $1.0225 is said to be ? |
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Definition
| A.) In the money (Remember your buying for less in the future $$) |
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Term
| Suppose the current spot rate for the SFr is $1.0302. A put option with an exercise price of $1.0225 is said to be |
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Definition
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Term
| Suppose the current spot rate for the Australian dollar is US $1.0035. The Intrinsic value of an Aussi $50,00 call option with an exercise US price of $1.000 is ? |
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Definition
B.) $175
1.0035-1.000=.0035(50,000)
Remember Intrinsic Value is Spot-Exercise |
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Term
| Suppose the current spot rate for the Euro is $1.40. The call Premuim on a call option with an exercise price of $1.39 is $0.0373. What is the Time value of one Euro 125,00 call option ? |
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Definition
c.) $3,412.50
IV= 1.40-1.39=0.01
TV= 0.0373-0.01
=0.0273 x 125,000= $3,412.50 |
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Term
| You can speculate on a depreication of the Japanese Yen by? |
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Definition
| c.) Buying a yen put option and selling a yen call option |
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Term
| Flour corp has just made a mexican peso bid on a major project located in mexico. It wont find out for 60 days whether it has won the contract. The best way to protect against currency risk on its bid is for fluor to |
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Definition
| d.) buy a peso put option |
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Term
| The basic Hedging Strategy involves |
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Definition
| c.) Reducing soft currency assets and hard currency liabilities |
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Term
| In a forward market hedge, a comapny that is short a foreign currency will _______the foreign currency forward |
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Definition
a.) Buy
Guys beware on this one he could easily put in LONG for short therefore you would then sell the currency forward
Short foreign currency buy the currency forward
Long Foreign currency sell the currency forward |
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Term
| Compaq computer has $1 million receivable that it expects to collect in one year. Suppose the interest rate on the pound is 15%. How could Compaq protect this recievable using the money market hedge? |
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Definition
C.) Borrow $869,565 pounds today
PV =1mm/1.15= 869,565.00 |
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Term
| Volkswagen (USA) and one of its suppliers enter into a contract that contains a price adjustment clause for the purpose of sharing exchange rate risk. The base price of the contract is 1 Euro- $1.50, and the neutral zone is specified as $1.46-$1.54. If the spot price of the Euro on the contract date is $1.60 the actual value used in the settlement will be: |
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Definition
D.) $1.53
1.54-1.60 = -.06 Then .06/2+ -.03 (then 1.50-(-.06/2)= 1.53 |
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Term
| GE expects to Recieve 10,000,000euros form Luthansa in one year. The current spot rate for the euro is $1.55/1EUR, and the one year forward rate is $1.65/1EUR. If GE uses the forward market hedge and the spot rate one year from now is $1.60/EUR, the value of the original recievable will be ________ and the cash flow that GE will recieve in one year will be_________ |
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Definition
D.) 16,000,000; $16,500,000
Original Receivable= 1.60*10,000,0000
Cash flow Ge will receive is 10,000,000* 1.65 |
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Term
| A currency collar is sometimes referred to as |
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Definition
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Term
| If the US fails to attract enough foreign capital to cover our trade deficit, the likely outcome will be |
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Definition
a.) An increase in US interest Rates
b.) A decline in the value of the US dollar
E. Both a and B |
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Term
| American terms refers to the |
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Definition
| a.) Number of US dollars per unit of foreign currency |
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Term
| Assumer that a bank's bid rate on Japanese yen is $0.0041 and its ask rate is $0.0043. Its bid-ask percentage spread is ? |
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Definition
c.) 4.65%
=ask-bid/ask * 100 |
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Term
| GE expects to Recieve 10,000,000euros form Luthansa in one year. The current spot rate for the euro is $1.35/1EUR, and the one year forward rate is $1.40/1EUR. If GE uses the forward market hedge and the spot rate one year from now is $1.45/EUR, the value of the original recievable will be ________ and the cash flow that GE will recieve in one year will be_________ |
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Definition
| B.) $14,500,000; $14,000,000 |
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Term
| Which of the following would be considered a money market instrument |
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Definition
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Term
| When the number of foreign currency units per US dollar is given, the exchange rate is expressed in |
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Definition
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Term
| If the forward rate is greater than the spot rate, then a foreign currency is at a _____ _____; if the forward rate is lower than the spot rate, a foreign currency is at a ____ ___ |
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Definition
| b.) Forward premium; Forward discount |
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Term
| If the euro is quoted at 1= $1.2588 and the British pound is quoted at 1= $1.822 then the cross rate of the pound per euro is |
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Definition
B.) 0.6909
=1/1.822 (/) 1/1.2588
=0.5488 (/) .7944
=.6908 |
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Term
| Exposure Netting is the process of offsetting which of the following currency postions: |
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Definition
A.) A long position in a currency with a short position in that currency
B.) A long position in a currency with a short position in a positively correlated currency
E.) Both a& b |
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Term
| Suppose the current spot rate for the Aussi dollar is US 1.085. the intrinsic value of an aussi$50,00 90 day call option with an exercise price of 1.055 US is ? |
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Definition
c.) 1500
IV= Spot-Exercise
1.085-1.055=(.03)*50,000 |
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Term
| Suppose the current spot rate for the Euro is $1.3500 The call Premuim on a call option with an exercise price of $1.3300 is $0.0373. What is the Time value of one Euro 62,500 call option ? |
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Definition
c.) $1,081.25
TV= price-IV |
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Term
| in a forward market hedge, a company that is LONG a foreign currency will ____the foreign currency forward |
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Definition
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Term
| If the euro is quoted at 1EUR = 1.2588 and the British pound is quoted at 1 EUR =1.822 then the cross rate of the euro per pound is: |
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Definition
a.) 1.4590
1/1.255 (/) 1/1.822 |
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Term
| The degree of political risk faced by a firm operating in a foreign country |
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Definition
| d.) depends on how the firm has stuctured its operations |
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Term
| One good Political risk indicator is |
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Definition
| A.) the seriousness of capital flight |
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Term
| Important country risks are |
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