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| 1 | |
Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00. What must the euro-pound exchange rate be? |
| | A) | €1 = £1.60 |
| | B) | €1 = £0.625 |
| | C) | €2.50 = £1 |
| | D) | €1 = £2.50 |
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| 2 | |
Suppose you observe the following exchange rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00. Starting with $1,000,000, how can you make money? |
| | A) | Exchange $1m for £625,000 at £1 = $1.60. Buy €1,250,000 at €2 = £1.00; trade for $1,062,500 at €1 = $.85. |
| | B) | Start with dollars, exchange for euros at €1 = $.85; exchange for pounds at €2.00 = £1.00; exchange for dollars at £1 = $1.60. |
| | C) | Start with euros; exchange for pounds; exchange for dollars; exchange for euros |
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| 3 | |
Consider the following spot and forward rate quotations:
| S($/€) | = | 0.85 | | F1($/€) | = | 0.86 | | F2($/€) | = | 0.87 | | F3($/€) | = | 0.88 |
Which of the following is true: |
| | A) | The euro is definitely going to be worth more dollars in six months. |
| | B) | The euro is probably going to be worth less in dollars in six months |
| | C) | The euro is trading at a forward discount. |
| | D) | The euro is trading at a forward premium. |
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| 4 | |
Consider the following spot and forward rate quotations:
| S($/€) | = | 0.85 | | F1($/€) | = | 0.86 | | F2($/€) | = | 0.87 | | F3($/€) | = | 0.88 |
Calculate the three-month forward premium in American terms. Assume 30-day months and 360-day years. |
| | A) | 3.53%. |
| | B) | 0.4235 |
| | C) | 0.1364. |
| | D) | 0.1412 |
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| 5 | |
In the forward market |
| | A) | Market participants agree to buy or sell foreign currency in the future at prices agreed-upon today. |
| | B) | Market participants agree to buy (not sell) foreign currencies in the future at prices agreed-upon today. |
| | C) | Market participants pay today for a specific amount of foreign currency to be received in the future. |
| | D) | Market participants agree to buy and sell fixed amounts of foreign currency at spot prices that will prevail in the future. |
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| 6 | |
Consider a trader who takes a long position in a six-month forward contract on British pounds. The forward rate is $1.75 = £1.00; the contract size is £62,500. At the maturity of the contract the spot exchange rate is $1.65 = £1.00 |
| | A) | The trader has lost $625. |
| | B) | The trader has lost $6,250. |
| | C) | The trader has made $6,250. |
| | D) | The trader has lost $66,287.88 |
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| 7 | |
An exchange rate quoted in American terms |
| | A) | Says how many units of foreign currency you get for one U.S. dollar. |
| | B) | Says how many U.S. dollars one unit of foreign currency is worth. |
| | C) | Is the same as the indirect quotation. |
| | D) | Is the inverse of the direct quotation. |
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| 8 | |
The spot and forward foreign exchange market: |
| | A) | Is an over-the-counter market. |
| | B) | Is open 24 hours a day, 7 days a week, somewhere in the world. |
| | C) | Is the largest and most active financial market in the world. |
| | D) | All of the above are correct. |
| | E) | None of the above are correct. |
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| 9 | |
The current spot exchange rate is $1.15/€ and the three-month forward rate is $1.25/€. Based upon your crystal ball, you are pretty confident that the spot exchange rate will be $1.00/€ in three months. Assume that you would like to buy or sell €100,000. What actions would you take to speculate in the forward market? How much will you make if your prediction is correct? |
| | A) | Take a short position in a forward. If you’re right you will make $15,000. |
| | B) | Take a long position in a forward contract on €100,000. If you’re right you will make $25,000. |
| | C) | Take a short position in a forward contract on €100,000. If you’re right you will make $25,000. |
| | D) | Take a long position in a forward contract on €100,000. If you’re right you will make $15,000. |
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| 10 | |
Restate the following one-, three-, and six-month outright forward American term bid-ask quotes in forward points:
| S($/€) | = | 0.8500 – 0.8505 | | F1($/€) | = | 0.8505 – 0.8510 | | F2($/€) | = | 0.8510 – 0.8520 | | F3($/€) | = | 0.8515 – 0.8530 |
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| | A) | | | Forward Point Quotations | | One-Month | 05-05 | | Three-Month | 10-15 | | Six-Month | 15-25 |
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| | B) | | | Forward Point Quotations | | One-Month | 05-05 | | Three-Month | 05-10 | | Six-Month | 05-10 |
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| | C) | | | Forward Point Quotations | | One-Month | 00-05 | | Three-Month | 05-10 | | Six-Month | 05-10 |
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