1) A CME contract on €125,000 with September delivery
a) Is an example of a forward contract
b) Is an example of a futures contract
c) Is an example of a put option
d) Is an example of a call option
Answer: b) Rationale: options trade on the CBOE
2 Yesterday, you entered into a futures contract to buy €62,500 at $1.20 per €. Suppose that the futures price closes today at $1.16. How much have you made/lost?
a) Depends on your margin balance
b) You have made $2,500.00
c) You have lost $2,500.00
d) You have neither made nor lost money, yet.
Answer: c) Rationale: You have lost $0.04, 62,500 times for a total loss of $2,500 = $0.04/€ × €62,500
3 In reference to the futures market, a speculator‖
a) attempts to profit from a change in the futures price
b) wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position in the futures contract
c) stands ready to buy or sell contracts in unlimited quantity
d) b) and c)
Answer: a)
4 Comparing ―forward and ―futures exchange contracts, we can say that:
a) They are both ―marked-to-market daily.
b) Their major difference is in the way the underlying asset is priced for future purchase or sale: futures settle daily and forwards settle at maturity.
c) A futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC.
Answer: d)
5 Comparing ―forward and ―futures exchange contracts, we can say that
a) Delivery of the underlying asset is seldom made in futures contracts
b) Delivery of the underlying asset is usually made in forward contracts
c) Delivery of the underlying asset is seldom made in either contract—they are typically cash settled at maturity.
d) a) and b)
e) a) and c).
Answer d)
6 In which market does a clearinghouse serve as a third party to all transactions?
a) Futures
b) Forwards
c) Swaps
d) None of the above
7 In the event of a default on one side of a futures trade,
a) The clearing member stands in for the defaulting party
b) The clearing member will seek restitution for the defaulting party
c) If the default is on the short side, a randomly selected long contract will not get paid. That party will then have standing to initiate a civil suit against the defaulting short.
Yesterday, you entered into a futures contract to buy €62,500 at $1.20 per €. Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted?
a) $1.2160 per €.
b) $1.208 per €.
c) $1.1920 per €.
d) $1.1840 per €.
Answer: d) Rationale: To get a margin call, you have to lose $1,000. That will happen when the price FALLS (since you’re buying euro) to $1.1840 per €: [$1.20/ € – $1.1840 per €] × €62,500 = $1,000.
9 Yesterday, you entered into a futures contract to sell €62,500 at $1.20 per €. Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted?
Answer: a) Rationale: To get a margin call, you have to lose $1,000. That will happen when the price RISES (since you’re selling euro at $1.20 per €.) to $1.2160 per €: [$1.2160/ € – $1.20 per €] × €62,500 = $1,000.
10 Three days ago, you entered into a futures contract to sell €62,500 at $1.20 per €. Over the past three days the contract has settled at $1.20, $1.22, and $1.24. How much have you made or lost?
a) Lost $0.04 per € or $2,500
b) Made $0.04 per € or $2,500
c) Lost $0.06 per € or $3,750
Answer: a) Rationale: Losses will happen when the price RISES (since you’re selling euro at $1.20 per €.) Total loss [$1.20/ € – $1.24 per €] × €62,500 = –$2,500
11 Today’s settlement price on a Chicago Mercantile Exchange (CME) Yen futures contract is $0.8011/¥100. Your margin account currently has a balance of $2,000. The next three days’ settlement prices are $0.8057/¥100, $0.7996/¥100, and $0.7985/¥100. (The contractual size of one CME Yen contract is ¥12,500,000). If you have a short position in one futures contract, the changes in the margin account from daily marking-to-market will result in the balance of the margin account after the third day to be
a) $1,425
b) $2,000
c) $2,325
d) $3,425
Answer: c) not unlike Problem 1 at the end-of-chapter exercises Rationale: $2,325 = $2,000 + ¥12,500,000×[(0.008011 – 0.008057) + (0.008057 – 0.007996) + (0.007996 – 0.007985)] Please note that $0.8011/¥100 = $0.008011/¥ and $0.8057/¥100 = $0.008057/¥, etc.
12 Today’s settlement price on a Chicago Mercantile Exchange (CME) Yen futures contract is $0.8011/¥100. Your margin account currently has a balance of $2,000. The next three days’ settlement prices are $0.8057/¥100, $0.7996/¥100, and $0.7985/¥100. (The contractual size of one CME Yen contract is ¥12,500,000). If you have a long position in one futures contract, the changes in the margin account from daily marking-to-market, will result in the balance of the margin account after the third day to be:
b) $1,675
c) $2,000
Answer: b) not unlike Problem 1 at the end-of-chapter exercises Rationale: $1,675 = $2,000 + ¥12,500,000×[(0.008057 - 0.008011) + (0.007996 – 0.008057) + (0.007985 – 0.007996)] Please note that $0.8011/¥100 = $0.008011/¥ and $0.8057/¥100 = $0.008057/¥, etc.
13 Open interest in currency futures contracts
a) Tends to be greatest for the near-term contracts
b) Tends to be greatest for the longer-term contracts
c) Typically decreases with the term to maturity of most futures contracts
d) a) and c)
14 The ―open interest‖ shown in currency futures quotations is:
a) the total number of people indicating interest in buying the contracts in the near future
b) the total number of people indicating interest in selling the contracts in the near future
c) the total number of people indicating interest in buying or selling the contracts in the near future
d) the total number of long or short contracts outstanding for the particular delivery month
15 The most widely used futures contract for hedging short-term U.S. dollar interest rate risk is:
a) The Eurodollar contract
b) The Euroyen contract
c) The EURIBOR contract
16 Consider the position of a treasurer of a MNC, who has $20,000,000 that his firm will not need for the next 90 days:
a) He could borrow the $20,000,000 in the money market
b) He could take a long position in the Eurodollar futures contract.
c) He could take a short position in the Eurodollar futures contract
Answer: b)
17 A DECREASE in the implied three-month LIBOR yield causes Eurodollar futures price
a) To increase
b) To decrease
c) There is no direct or indirect relationship
18 If you think that the dollar is going to appreciate against the euro
a) You should buy put options on the euro
b) You should sell call options on the euro
c) You should buy call options on the euro
Answer: c)
19 From the perspective of the writer of a put option written on €62,500. If the strike price is $1.25/€, and the option premium is $1,875, at what exchange rate do you start to lose money?
a) $1.22/€
b) $1.25/€
c) $1.28/€
20 A European option is different from an American option in that
a) One is traded in Europe and one in traded in the United States
b) European options can only be exercised at maturity; American options can be exercised prior to maturity. c) European options tend to be worth more than American options, ceteris paribus.
d) American options have a fixed exercise price; European options’ exercise price is set at the average price of the underlying asset during the life of the option.
21 An ―option‖ is(名词解释)
a) a contract giving the seller (writer) the right, but not the obligation, to buy or sell a given quantity of an asset at a specified price at some time in the future
b) a contract giving the owner (buyer) the right, but not the obligation, to buy or sell a given quantity of an asset at a specified price at some time in the future
c) not a derivative, nor a contingent claim, security
d) unlike a futures or forward contract
22 An investor believes that the price of a stock, say IBM’s shares, will increase in the next 60 days. If the investor is correct, which combination of the following investment strategies will show a profit in all the choices?
(i) - buy the stock and hold it for 60 days
(ii) - buy a put option
(iii) - sell (write) a call option
(iv) - buy a call option
(v) - sell (write) a put option
a) (i), (ii), and (iii)
b) (i), (ii), and (iv)
c) (i), (iv), and (v)
d) (ii) and (iii)
23 Most exchange traded currency options
a) Mature every month, with daily resettlement.
b) Have original maturities of 1, 2, and 3 years.
c) Have original maturities of 3, 6, 9, and 12 months.
d) Mature every month, withOUT daily resettlement
24 The volume of OTC currency options trading is
a) Much smaller than that of organized-exchange currency option trading.
b) Much larger than that of organized-exchange currency option trading.
c) Larger, because the exchanges are only repackaging OTC options for their customers
Answer: A
26 With currency futures options the underlying asset is
a) Foreign currency
b) A call or put option written on foreign currency
c) A futures contract on the foreign currency
27 Exercise of a currency futures option results in
a) A long futures position for the call buyer or put writer
b) A short futures position for the call buyer or put writer
c) A long futures position for the put buyer or call writer
d) A short futures position for the call buyer or put buyer
28 A currency futures option amounts to a derivative on a derivative. Why would something like that exist?
a) For some assets, the futures contract can have lower transactions costs and greater liquidity than the underlying asset
b) Tax consequences matter as well, and for some users an option contract on a future is more tax efficient
c) Transactions costs and liquidity.
d) All of the above
29 The current spot exchange rate is $1.25 = €1.00 and the three-month forward rate is $1.30 = €1.00. Consider a three-month American call option on €62,500. For this option to be considered at-the-money, the strike price must be:
a) $1.30 = €1.00
b) $1.25 = €1.00
c) $1.25 × (1+i$) 3/12 = €1.00 × (1+i€) 3/12
d) none of the above
30 The current spot exchange rate is $1.25 = €1.00 and the three-month forward rate is $1.30 = €1.00. Consider a three-month American call option on €62,500 with a strike price of $1.20 = €1.00. Immediate exercise of this option will generate a profit of
a) $6,125
b) $6,125/(1+i$) 3/12
c) negative profit, so exercise would not occur
d) $3,125
Answer: d) Rationale: with early exercise, you can pay $1.20 for something worth $1.25. So you make a nickel. Make a nickel 62,500 times and you’ve made $3,125.
31 The current spot exchange rate is $1.25 = €1.00 and the three-month forward rate is $1.30 = €1.00. Consider a three-month American call option on €62,500 with a strike price of $1.20 = €1.00. If you pay an option premium of $5,000 to buy this call, at what exchange rate will you break-even?
a) $1.28 = €1.00
b) $1.32 = €1.00
c) $1.20 = €1.00
d) $1.38 = €1.00
Answer: a) Rationale: A $5,000 option premium on €62,500 amounts to $0.08 per euro. With a strike price of $1.20 = €1.00 the exchange rate has to go to $1.28 = €1.00 for you to break even.
34 The current spot exchange rate is $1.25 = €1.00; the three-month U.S. dollar interest rate is 2%. Consider a three-month American call option on €62,500 with a strike price of $1.20 = €1.00. What is the least that this option should sell for?
a) $0.05×62,500 = $3,125
b) $3,125/1.02 = $3,063.73
c) $0.00
35 Which of the follow options strategies are consistent in their belief about the future behavior of the underlying asset price?
a) selling calls and selling puts
b) buying calls and buying puts
c) buying calls and selling puts
36 American call and put premiums
a) Should be at least as large as their intrinsic value
b) Should be at no larger than their moneyness
c) Should be exactly equal to their time value
d) Should be no larger than their speculative value
37 Which of the following is correct?
a) time value = intrinsic value + option premium
b) intrinsic value = option premium + time value
c) Option premium = intrinsic value – time value
d) Option premium = intrinsic value + time value
39 For European options, what of the effect of an increase in St?
a) Decrease the value of calls and puts ceteris paribus
b) Increase the value of calls and puts ceteris paribus
c) Decrease the value of calls, increase the value of puts ceteris paribus
d) Increase the value of calls, decrease the value of puts ceteris paribus
41 For European options, what of the effect of an increase in E?
42 For European currency options written on euro with a strike price in dollars, what of the effect of an increase in r$ relative to r€?
43 For European currency options written on euro with a strike price in dollars, what of the effect of an increase in r$?
c) Decrease the value of calls, increase the value of puts ceteris paribus d) Increase the value of calls, decrease the value of puts ceteris paribus
44 For European currency options written on euro with a strike price in dollars, what of the effect of an increase r€?
Rationale: a) and b) are straight out of the book; c) is true (it’s also a pretty mild statement) but not explicitly stated in the book, but a good student would know that if a) and b) are true, then the right answer must be d).
47 Find the input d1 of the Black-Scholes price of a six-month call option written on €100,000 with a strike price of $1.00 = €1.00. The current exchange rate is $1.25 = €1.00; The U.S. risk-free rate is 5% over the period and the euro-zone risk-free rate is 4%. The volatility of the underlying asset is 10.7 percent.
a) d1 = 0.103915
b) d1 = 2.9871
c) d1 = –0.0283
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