Chapter3习题集及答案

Chapter3习题集及答案

Chapter 3 Foreign Currency Futures

3.1 Multiple Choice and True/False Questions

1) Financial derivatives are powerful tools that can be used by management for purposes of

A) speculation.

B) hedging.

C) arbitrage.

D) A, B and C above.

Answer: D

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

3) Currency futures contracts have become standard fare and trade readily in the world money centers.

Answer: TRUE

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

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) fixed gains

Answer: D

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

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

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

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

10) Peter Simpson expects that the U.K. pound will cost $1.62/￡ in six months. A 6-month currency futures contract is available today at a rate of $1.63/￡. 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

11) Jack Hemmings bought a 3-month British pound futures contract for $1.6200/￡ only to see the dollar appreciate to a value of $1.6118 at which time he sold the pound futures. If each pound futures contract is for an amount of ￡62,500, how much money did Jack gain or lose from his

speculation with pound futures?

A) $512.50 loss

B) $512.50 gain

C) ￡512.50 loss

D) ￡512.50 gain

Answer: A

12) Which of the following statements regarding currency futures contracts and forward contracts is true?

A) A futures contract is a standardized amount per currency whereas the forward contact is for any size desired.

B) A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year.

C) Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages.

D) All of the above are true.

Answer: D

13) Which of the following is a difference between a currency futures contract and a forward contract?

A) The futures contract is marked to market daily whereas the forward contract is only due to be settled at maturity.

B) The counterparty to the futures participant is unknown with the clearinghouse stepping into each transaction whereas the forward contract participants are in direct contact setting the forward specifications.

C) A single sales commission covers both the purchase and sale of a futures contract whereas there is no specific sales commission with a forward contract because banks earn a profit through the bid-ask spread.

D) All of the above are true.

Answer: D

14) As a general statement, it is safe to say that businesses generally use the ________ for foreign currency forward contracts, and individuals and financial institutions typically use the ________for foreign currency futures contracts.

A) exchange markets; over-the-counter

B) over-the-counter; exchange markets

C) private; government sponsored

D) government sponsored; private

Answer: B

15) All exchange-traded futures are settled through a clearing house but over-the-counter forwards are not and are thus subject to greater ________ risk.

A) exchange rate

B) country

C) counterparty

D) none of the above

Answer: C

16) When reading the futures quotation in the financial section of the newspaper, the column heading indicating the number of contracts outstanding is called ________.

A) contracts outstanding

B) settle

C) open interest

D) short positions

Answer: C

Table 3.1

Use the below mentioned table to answer following question(s). December 17, 2009, British Pound futures Prices for 2010 (US dollars per pound, 62,500 pound contracts).

Maturity Open High Low Change Settle Volume March 10 1.6315 1.6333 1.6071 -0.0155 1.6146 127,234 June 10 1.6315 1.6323 1.6065 -0.0155 1.6137 145

17)Refer to Table 3.1. What was the contract price of the British pound, if you need to lock the value of GBP for your GBP receivables in 3-month period?

A) $1.6146/￡

B) ￡1.6146/$

C) $1.6315/￡

D) ￡1.6315/$

Answer: A

18) Refer to Table 3.1. The price of ________ making you taking a short position to sell two pounds futures contracts have maturity date in June 10, 2010 has a total contract value of ________.

A) ￡1.6137/$, ￡201,712.50

B) $1.6137/￡, $201,712.50

C) $1.6146/￡, $100,912.50

D) ￡1.6146/$, $100,912.50

Answer: B

19) Refer to Table 3.1 and question 19. If the spot exchange rate of British pound proves to be $1.6128/￡ in June 10, 2010, what is your gain or loss for your short position?

A) $112.50 gain

B) $112.50 loss

C) $56.25 gain

D) $56.25 loss

Answer: A

20) Andrea Lee is a currency speculator who enjoys \"betting\" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ￥90.870/$ and the 6-month futures contract price is ￥90.530/$. Andrea thinks the yen will move to ￥90.120/$ in the next six months. Andrea should ________ at the futures price to profit from changing currency values.

A) buy yen

B) buy dollars

C) sell yen

D) There is not enough information to answer this question.

Answer: A

3.2 Essay Questions

1) Why are foreign currency futures contracts more popular with

individuals and banks while foreign currency forwards are more popular with businesses?

Answer: Foreign currency futures are standardized contracts that lend

themselves well to speculation purposes but less so for hedging purposes. The standardized nature of the futures contract makes it easy to trade futures and to make bets about general changes in the value of currencies. Forward contracts are better for hedging in that they are tailored to meet the specific needs of the client, typically a business, and can be quite useful in reducing exchange rate risk. Banks are involved in the foreign currency futures market in part to offset positions that they may have taken in the forward markets as dealers.

2) How do currency forward and futures contracts differ with respect to maturity, settlement, and the size and timing of cash flows?

Answer: see p36-37, Table 3.7

3) What is the primary role of the exchange clearinghouse?

Answer: see p14-15

※4) Draw and explain the payoff profile associated with a currency futures contract.

Answer: refer to chapter 8