Question 1 Let\'s assume the current spot rate for the euro is $1.3527. A call o

ID: 2716974 • Letter: Q

Question

Question 1

Let's assume the current spot rate for the euro is $1.3527. A call option with an exercise price of $1.3650 is said to be

a)inthemoney

b)outofthemoney

c)atthemoney

d)past breakeven

Question 2

Regarding wire transfers, CHIPS and SWIFT actually clears transactions.

a) True

b) False

Question 3

Let's assume it is May 2015 and the current spot rate for the Swiss Franc is $0.5925. The call premium on a call option with an exercise price of $0.5675 is $0.0473. What is the time value of one SF 62,500 call option?

a)$2,331.25

b)$1,562.50

c)$1,393.75

d)$768.75

Question 4

The value of a European option always

a)exceeds its intrinsic value

b)rises with the time to maturity

c)rises with the interest rate

d)rises with the volatility of the exchange rate

Question 5

A firm has just made a UK pounds bid on a major project located in UK. It won't find out for 45 days whether it has won the contract. There will be a 10% signing bonus payable to the winner in pounds. The best way to protect against currency risk on its bid is for the firm to

a)purchase a pound futures contract.

b)sell a pound call option.

c)sell a pound futures contract.

d)purchase a pound put option.

Question 6

Which would NOT be a significant decision-making factor in a multinational firm's repositioning decision-making?

a)the subsidiary's tax environment (high or low)

b)the instability of the local currency

c)the ability to move capital in and out of the subsidiary's country

d)All of the above are significant factors.

Question 7

Of the following capital budgeting decision criteria, which does NOT use discounted cash flows?

a)net present value

b)internal rate of return

c)accounting rate of return

d)All of these techniques typically use discounted cash flows.

Explanation / Answer