60.1K

Verified Solution

Link Copied!

1. Comparing with options, both forward and futures contracts have a significant drawback that

a) cannot protect the holder against the risk of adverse movements in exchange rates

b) are more expensive

c) are available only for relatively short maturities

d) eliminate the possibility of gaining a windfall profit from favorable movements in exchange rates

2. Suppose the exchange rate of euro at current spot market is $1.25/. If a call option has a strike price of $1.28/ then we can say this option is

a) inthemoney

b) outofthemoney

c) atthemoney

d) past breakeven

3. Suppose the exchange rate of euro at current spot market is $1.25/. If a put option has a strike price of $1.18/ then we can say this option is

a) inthemoney

b) outofthemoney

c) atthemoney

d) past breakeven

4. According to our class discussion, suppose a U.S. based real estate developer is participating in a bid competition for a land in London. What of the followings can provide the best protection when Pound is expected to appreciate

a) Call options

b) buy futures

c) sell forwards

d) buy forwards

5. Which of following activities dominates foreign exchange transactions

a) multinational corporations buying and selling foreign exchange

b) importers and exporters buying and selling foreign exchange

c) banks buying and selling foreign exchange

d) governments buying and selling foreign exchange

Answer & Explanation Solved by verified expert

See Answer