Chapter 8 - foreign currency derivatives

Chapter 8 - Foreign Currency Derivatives
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Unformatted text preview: Fundamentals of Multinational Finance , 3e (Moffett) Chapter 8 1 Foreign Currency Derivatives 8.1 Mul 1) Financial derivatives are powerful tools that can be used by management for purposes of A) speculation. B) hedging. C) human resource management. D) A and B above. Answer: D Topic: Financial Derivatives Skill: Recognition 2) A foreign currency ________ contract calls for the future delivery of a standard amount of foreign exchange at a fixed time, place, and price. A) futures B) forward C) option D) swap Answer: A Topic: Futures Contract Skill: Recognition 3) Currency futures contracts have become standard fare and trade readily in the world money centers. Answer: TRUE Topic: Futures Contract Skill: Recognition 4) The major difference between currency futures and forward contracts is that futures contracts are standardized for ease of trading on an exchange market whereas forward contracts are specialized and tailored to meet the needs of clients. Answer: TRUE Topic: Futures Contract Skill: Recognition 5) Which of the following is NOT a contract specification for currency futures trading on an organized exchange? A) size of the contract B) maturity date C) last trading day D) All of the above are specified. Answer: D Topic: Futures Contract Skill: Recognition 6) About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller. A) 0% B) 5% C) 50% D) 95% Answer: B Topic: Futures Contract Skill: Analytical 7) Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a A) collateralized deposit. B) marked market sum. C) margin. D) settlement. Answer: C Topic: Futures Contract Provisions Skill: Recognition 8) A speculator in the futures market wishing to lock in a price at which they could ________ a foreign currency will ________ a futures contract. A) buy; sell B) sell; buy C) buy; buy D) none of the above Answer: C Topic: Currency Speculation Skill: Conceptual 9) A speculator that has ________ a futures contract has taken a ________ position. A) sold; long B) purchased; short C) sold; short D) purchased; sold Answer: C Topic: Currency Speculation Skill: Recognition 10) Peter Simpson thinks that the U.K. pound will cost $1.43/ in six months. A 6- month currency futures contract is available today at a rate of $1.44/. If Peter was to speculate in the currency futures market, and his expectations are correct, which of the following strategies would earn him a profit? A) Sell a pound currency futures contract. B) Buy a pound currency futures contract. C) Sell pounds today. D) Sell pounds in six months. Answer: A Topic: Currency Speculation Skill: Conceptual 11) Jack ...
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