Multinational Financial Management by Alan Shapiro: Currency Futures and Options Markets

CHAPTER 8
Currency Futures and Options Markets

EASY (definitional)

8.1 Which one of the following currency futures contracts is currently NOT available?
a) French franc
b) Hungarian forint
c) Czech koruna
d) Norwegian krone

Ans: a
Section: Futures contracts
Level: Easy

8.2 Which of the following has provided a major inducement for speculators to participate in the futures market?
a) low margin requirements
b) low bid‑ask spreads
c) high volume compared to the forward market
d) all of the above

Ans: a
Section: Forward contracts versus futures contracts
Level: Easy

8.3 Options traded in the interbank market are known as
a) listed options
b) exchange‑traded options
c) over‑the‑counter options
d) long-term options

Ans: c
Section: Future contracts
Level: Easy

8.4 Major advantages of futures contracts include the
a) large number of currencies traded
b) extensive delivery dates available
c) freedom to liquidate the contract at any time before its maturity
d) unlimited contract sizes

Ans: c
Section: Advantages and disadvantages of future contracts
Level: Easy

8.5 The major disadvantage of forward and futures contracts relative to options is that the forwards and futures contracts
a) cannot protect the holder against the risk of adverse movements in exchange rates
b) are more expensive
c) are available only for relatively short maturities
d) eliminate the possibility of gaining a windfall profit from favorable movements in exchange rates

Ans: d
Section: Advantages and disadvantages of future contracts
Level: Easy

8.6 Suppose the current spot rate for the euro is $1.3427. A call option with an exercise price of $1.3550 is said to be
a) in‑the‑money
b) out‑of‑the‑money
c) at‑the‑money
d) past breakeven

Ans: b
Section: Using currency options
Level: Easy

8.7 Suppose the current spot rate for the pound is $01.7427. A put option with an exercise price of $01.7550 is said to be
a) in‑the‑money
b)