67.1) A foreign exchange rate is the price of one currency expressed in terms of
ID: 1109478 • Letter: 6
Question
67.1) A foreign exchange rate is the price of one currency expressed in terms of another currency. A foreign exchange quote is a willingness to buy or sell at the announced rate.
TRUE or FALSE
67.2) Most foreign exchange transactions are through the U.S. dollar. Assuming you are a U.S. investor, if the transaction is expressed as the foreign currency per dollar this known as European (or indirect) terms whereas American (or direct) terms are expressed as dollars per foreign unit.
TRUE or FALSE
67.3) £0.920/$ is an example of an American term foreign exchange quote.
TRUE or FALSE
67.4) From the viewpoint of a British investor, $1.25/£ is a direct quote in the foreign exchange market.
TRUE or FALSE
67.5) Futures contracts require the purchaser to deposit an initial sum as collateral called a margin. A speculator in the futures market wishing to buy yen at a fixed price would purchase a yen futures contract.
TRUE or FALSE
89.1) An option whose exercise price is equal to the spot rate is said to be ________.
A) in-the-money
B) at-the-money
C) on-the-spot
D) out-of-the-money
89.2) Bill Ding works for the currency trading unit of ING Bank in London. He speculates that in the coming months the yen will rise sharply vs. the pound. What should Bill do to act on his speculation?
A) Sell a put on the yen.
B) Buy a put on the yen.
C) Sell a call on the yen.
D) Buy a call on the yen.
89.3) Your U.S firm has an accounts payable denominated in UK pounds due in 6 months. To protect yourself against unexpected changes in the dollar/pound exchange rate you should
A) buy a pound put option.
B) sell a pound call option.
C) sell a pound put option.
D) buy a pound call option.
89.4) The maximum gain for the purchaser of a call option contract is ________ while the maximum loss is ________.
A) the premium paid; unlimited.
B) unlimited; the premium paid.
C) unlimited; the value of the underlying asset.
D) unlimited; unlimited.
89.5) Jones Industries is currently paying a fixed rate loan and desires variable loan payments. Refinancing is currently not available so they decide to pursue an interest rate swap agreement. Which of the following will help Jones get their desired cash outflows? Enter into an agreement to:
A) Receive a quoted rate and pay LIBOR + 1.50%.
B) Receive LIBOR and pay LIBOR + 1.50%.
C) Receive LIBOR and pay a quoted rate.
D) None of the above will help Johnson Industries pay a fixed amount for their obligations.
Explanation / Answer
67. 1 True , Foreign exchange rate tells the price of one currency in terms of other currency.
67.2 True, For American investor it will be Dollar/ euro and for European it will be Euro/ Dollar
67.3 False, For American it will be $€
67.4 False, For British investor it will be £/$
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