1. The basic difference(s) between forward and futures contracts is that
a) forward contracts are individually tailored while futures contracts are standardized
b) forward contracts are negotiated with banks whereas futures contracts are bought and sold on an organized exchange
c) forward contracts have no daily limits on price fluctuations whereas futures contracts have a daily limit on price fluctuations
d) all of the above
e) none of the above

2. Currency futures contracts are currently available for the
a) British pound
b) Canadian dollar
c) Euro
d) Swiss franc
e) all of the above

3. Which of the following has provided a major inducement for speculators to participate in the futures market?
a) low margin requirements
b) low bid-ask spreads
c) high volume compared to the forward market
d) all of the above
e) a and b only

4. Major advantages of futures contracts include the
a) large number of currencies traded
b) extensive delivery dates available
c) freedom to liquidate the contract at any time before its maturity
d) all of the above
e) a and b only

5. Suppose you are holding a long position in a French franc futures contract that matures in 76 days. The agreed-upon price is $0.15 for FF 250,000. At the close of trading today, the futures price has risen to $0.155. Under marking to market, you now
a) hold a futures contract that has risen in value by $1,250
b) hold a futures contract that has fallen in value by $625
c) will receive $1,250 and a new futures contract priced at $0.155
d) must pay over $1,250 to the seller of the futures contract
e) none of the above

6. Suppose that the interbank forward bid for March 20 on Swiss francs is $0.7827 at the same time that the price of IMM Swiss franc futures for delivery on March 20 is $0.7795. How much of an arbitrage profit could a dealer earn per March Swiss franc futures contract of SFr 125,000?
a) $400
b) $68
c) $215
d) $58
e) None. There is no arbitrage opportunity.

7. The major disadvantage of forward and futures contracts relative to options is that the forwards and futures contracts
a) cannot protect the holder against the risk of adverse movements in exchange rates
b) are more expensive
c) are available only for relatively short maturities
d) eliminate the possibility of gaining a windfall profit from favorable movements in exchange rates
e) all of the above

8. Suppose the current spot rate for the DM is $0.7427. A currency call option with an exercise price of $0.7550 is said to be
a) in-the-money
b) out-of-the-money
c) at-the-money
d) past breakeven
e) none of the above

9. Suppose the current spot rate for the DM is $0.7427. A put option with an exercise price of $0.7550 is said to be
a) in-the-money
b) out-of-the-money
c) at-the-money
d) past breakeven
e) none of the above

10. Suppose the current spot rate for the Australian dollar is U.S.$0.8321. The intrinsic value of an A$50,000 call option with an exercise price of U.S.$0.8195 is
a) 0
b) $630
c) $740
d) $2,340
e) none of the above

11. Suppose the current spot rate for the DM is $0.5925. The call premium on a call option with an exercise price of $0.5675 is $0.0373. What is the time value of one DM 62,500 call option?
a) $2,331.25
b) $1,562.50
c) $950.00
d) $768.75
e) none of the above

12. Suppose the current spot rate for the DM is $0.5925. The call premium on a call option with an exercise price of $0.5675 is $0.0373. What is the intrinsic value of one DM 62,500 call option?
a) $2,331.25
b) $1,562.50
c) $950.00
d) $768.75
e) none of the above

13. The time value of a European option
a) is always positive for an out-of-the-money option
b) is always positive for an in-the-money option
c) is always positive for an at-the-money option
d) decreases with the time that remains until the option expires
e) all of the above

14. The value of a European option always
a) exceeds its intrinsic value
b) rises with the time to maturity
c) rises with the volatility of the exchange rate
d) all of the above

17. You can speculate on a pound depreciation by
a) selling pound futures and buying a pound call option
b) buying pound futures and a pound put option
c) selling pound futures and a pound put option
d) buying pound futures and a pound call option
e) none of the above

18. You can speculate on an appreciation of the Japanese yen by
a) selling a yen put option and buying a yen call option
b) selling a yen put option and selling a yen call option
c) buying a yen put option and selling a yen call option
d) buying a yen put option and buying a yen call option
e) none of the above

19. Options traded in the interbank market are known as
a) listed options
b) exchange-traded options
c) over-the-counter options
d) all of the above
e) a and b only

20. Fluor Corporation has just made a French franc bid on a major project located in France. It won't find out for 60 days whether it has won the contract. The best way to protect against currency risk on its bid is for Fluor to
a) buy a franc futures contract
b) sell a franc call option
c) sell a franc futures contract
d) buy a franc put option
e) none of the above

answers( 1.d 2 e  3.d 4 c 5c 6 a 7 d 8. b 9 a  10 b  13. a 17. e 18.a  19. c  20. d)