Ch007_Futures_and_Options - Eun Resnick 4e CHAPTER 7...

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Eun & Resnick 4e CHAPTER 7 Futures and Options on Foreign Exchange Futures Contracts: Some Preliminaries Currency Futures Markets International Finance in Practice: CME Ramping Up FOREX Support, Targets OTC Business Basic Currency Futures Relationships Eurodollar Interest Rate Futures Contracts Options Contracts: Some Preliminaries Currency Options Markets Currency Futures Options Basic Option-Pricing Relationships at Expiration American Option-Pricing Relationships European Option-Pricing Relationships Binomial Option-Pricing Model European Option-Pricing Formula Empirical Tests of Currency Options Summary MINI CASE: The Options Speculator Futures Contracts: Some Preliminaries 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?
3 In reference to the futures market, a “speculator”
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4 Comparing “forward” and “futures” exchange contracts, we can say that:
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)

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