Suppose that the exchange rate is 125 100options

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Fundamentals of Financial Management
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Chapter 18 / Exercise 1A
Fundamentals of Financial Management
Brigham
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72) Suppose that the exchange rate is €1.25 = £1.00.Options (calls and puts) are available on the
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Fundamentals of Financial Management
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Chapter 18 / Exercise 1A
Fundamentals of Financial Management
Brigham
Expert Verified
Philadelphia exchange in units of €10,000 with strike prices of $1.60/€1.00.Options (calls and puts) are available on the Philadelphia exchange in units of £10,000 with strike prices of $2.00/£1.00. For a U.S. firm to hedge a €100,000 receivable, A) buy 10 call options on the euro with a strike in dollars. B) buy 10 put options on the pound with a strike in dollars. C) sell 10 call options on the euro with a strike in dollars. D) sell 8 put options on the pound with a strike in dollars. Answer: B Topic: Currency Options Contracts 73) Suppose that $2 = £1, $1.60 = €1, and the cross-exchange rate is €1.25 = £1.00. If you own a call option on £10,000 with a strike price of $1.50, you would exercise this option at maturity if A) the $/£ exchange rate is at least $1.60/£. B) the $/€ exchange rate is at least $1.60/€. C) the €/£ exchange rate is at least €1.25/£. D) none of the options Answer: D Topic: Currency Options Contracts 74) Suppose that the exchange rate is €1.25 = £1.00.Options (calls and puts) are available on the London exchange in units of €10,000 with strike prices of £0.80 = €1.00.Options (calls and puts) are available on the Frankfurt exchange in units of £10,000 with strike prices of €1.25 = £1.00. For an Italian firm to hedge a £100,000 payable, A) buy 10 call options on the pound with a strike in euro. B) buy 8 put options on the euro with a strike in pounds. C) buying 10 call options on the pound with a strike in euro or buying 8 put options on the euro with a strike in pounds will both work. D) none of the options Answer: C Topic: Currency Options Contracts 75) Suppose that the exchange rate is €1.25 = £1.00.Options (calls and puts) are available on the London exchange in units of €10,000 with strike prices of £0.80 = €1.00. Options (calls and puts) are available on the Frankfurt exchange in units of £10,000 with strike prices of €1.25 = £1.00. For a French firm to hedge a £100,000 receivable, A) buy 10 call options on the pound with a strike in euro. B) buy 10 put options on the pound with a strike in euro. C) buy 8 call options on the euro with a strike in pounds. D) buy 10 put options on the pound with a strike in euro and buy 8 call options on the euro with a strike in pounds. Answer: D Topic: Currency Options Contracts 76) A minor currency is A) anything other than the "big six": U.S. dollar, British pound, Japanese yen, euro, Canadian
dollar, and Swiss franc. B) any currency that trades at less than one U.S. dollar. C) any currency that is less than a $20 denomination. D) none of the options Answer: A Topic: Cross-Hedging Minor Currency Exposure Accessibility: Keyboard Navigation

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