Multiple Choice Answers

The “open interest” shown in currency futures quotations is:
A. the total number of people indicating interest in buying the contracts in the near future
B. the total number of people indicating interest in selling the contracts in the near future
C. the total number of people indicating interest in buying or selling the contracts in the near future
D. the total number of long or short contracts outstanding for the particular delivery month

The most widely used futures contract for hedging short-term U.S. dollar interest rate risk is:
A. The Eurodollar contract
B. The Euroyen contract
C. The EURIBOR contract
D. None of the above

An investor believes that the price of a stock, say IBM’s shares, will increase in the next 60 days. If the investor is correct, which combination of the following investment strategies will show a profit in all the choices?
(i) – buy the stock and hold it for 60 days
(ii) – buy a put option
(iii) – sell (write) a call option
(iv) – buy a call option
(v) – sell (write) a put option
A. (i), (ii), and (iii)
B. (i), (ii), and (iv)
C. (i), (iv), and (v)
D. (ii) and (iii)

Most exchange traded currency options
A. Mature every month, with daily resettlement.
B. Have original maturities of 1, 2, and 3 years.
C. Have original maturities of 3, 6, 9, and 12 months.
D. Mature every month, without daily resettlement

Consider the position of a treasurer of a MNC, who has $20,000,000 that his firm will not need for the
next 90 days:
A. He could borrow the $20,000,000 in the money market
B. He could take a long position in the Eurodollar futures contract.
C. He could take a short position in the Eurodollar futures contract
D. None of the above

A DECREASE in the implied three-month LIBOR yield causes Eurodollar futures price
A. To increase
B. To decrease
C. There is no direct or indirect relationship
D. None of the above

If you think that the dollar is going to appreciate against the euro
A. You should buy put options on the euro
B. You should sell call options on the euro
C. You should buy call options on the euro
D. None of the above

From the perspective of the writer of a put option written on €62,500. If the strike price is $1.55/€, and
the option premium is $1,875, at what exchange rate do you start to lose money?
A. $1.52/€
B. $1.55/€
C. $1.58/€
D. None of the above

An “option” is:
A. a contract giving the seller (writer) of the option the right, but not the obligation, to buy (call) or sell
(put) a given quantity of an asset at a specified price at some time in the future
B. a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (call) or sell (put) a given quantity of an asset at a specified price at some time in the future
C. a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (put) or sell (call) a given quantity of an asset at a specified price at some time in the future
D. a contract giving the owner (buyer) of the option the right, but not the obligation, to buy (put) or sell (sell) a given quantity of an asset at a specified price at some time in the future

A European option is different from an American option in that
A. One is traded in Europe and one in traded in the United States
B. European options can only be exercised at maturity; American options can be exercised prior to
maturity.
C. European options tend to be worth more than American options, ceteris paribus.
D. American options have a fixed exercise price; European options’ exercise price is set at the average
price of the underlying asset during the life of the option.