Final Exam SOLUTIONS

Final Exam SOLUTIONS - Final Exam Williams Spring 08 1...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Final Exam Williams – Spring 08 1 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 2 The key factors that are important in a firm’s decision to invest overseas are: a) Trade barriers, imperfect labor market, and intangible assets b) vertical integration, product life cycle, and shareholder diversification services c) profit maximization, global prestige, and competition d) a) and b) 3 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 4 For an American call option, A and B in the graph are a) Time value and intrinsic value b) Intrinsic value and time value c) In-the-money and out-of-the money d) None of the above Option value, C at A B S t Value of call option S t – E E 5 American Depository Receipt (ADRs) represent foreign stocks: a) denominated in U.S. dollars that trade on European stock exchanges b) denominated in U.S. dollars that trade on a U.S. stock exchange c) denominated in a foreign currency that trade on a U.S. stock exchange d) non-registered (bearer) securities 6 For European options, what of the effect of an increase in volatility ? 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
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
7 In the PBS special about Long-Term Capital Management, what events helped lead to the downfall of the hedge fund? a) The Asian currency crisis b) The events of 9/11 c) Russia defaulting on debt d) All of the above e) Only A and C 8 Find the value of a call option written on €500 with a strike price of $1.00 = €1.50. In one period there are only two possibilities that are equally likely to occur: the $/€ exchange rate will either be . 833/€ or .567/€. The risk-free rate is 10% over the period. a) $0 b) $9.52 c) $25.20 d) $27.72 Suppose that Boeing Corporation exported a Boeing 747 to British Airways and billed £10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows: The U.S. one-year interest rate: 6.10% per annum The U.K. one-year interest rate: 9.00% per annum The spot exchange rate: $1.50/£ The one-year forward exchange rate $1.46/£ Assume that Boeing sells a currency forward contract of £10 million for delivery in one year, in exchange for a predetermined amount of U.S. dollar. Suppose that on the maturity date of the forward contract, the
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/24/2008 for the course FIN 4328 taught by Professor Thomasc.williams during the Spring '08 term at Texas Tech.

Page1 / 7

Final Exam SOLUTIONS - Final Exam Williams Spring 08 1...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online