International Financial Management by Cheol Eun 8th Edition-Test Bank

International Financial Management by Cheol Eun 8th Edition-Test Bank

International Financial Management, 8e (Eun)
Chapter 7 Futures and Options on Foreign Exchange

1) A put option on $15,000 with a strike price of €10,000 is the same thing as a call option on €10,000 with a strike price of $15,000.

2) 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.

3) Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Suppose the futures price closes today at $1.46. 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.

4) 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) 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, and also stands ready to buy or sell contracts in unlimited quantity.

5) 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.
D) 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, and a futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while a forward contract is tailor-made by an international bank for its clients and is traded OTC.
6) 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) delivery of the underlying asset is seldom made in futures contracts and delivery of the underlying asset is usually made in forward contracts.

7) In which market does a clearinghouse serve as a third party to all transactions?
A) Futures
B) Forwards
C) Swaps
D) none of the options

8) 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.
D) the clearing member stands in for the defaulting party and will seek restitution for the defaulting party.

9) Yesterday, you entered into a futures contract to buy €62,500 at $1.50 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) $1.5160 per €.
B) $1.208 per €.
C) $1.1920 per €.
D) $1.4840 per €.

10) Yesterday, you entered into a futures contract to sell €75,000 at $1.79 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) $1.7767 per €.
B) $1.2084 per €.
C) $1.6676 per €.
D) $1.1840 per €.