Final Exam Williams – Spring 08

1 Exercise of a currency futures option results in

a) A long futures position for the call buyer or put writer

b) A short futures position for the call buyer or put writer

c) A long futures position for the put buyer or call writer

d) A short futures position for the call buyer or put buyer

2 The key factors that are important in a firm’s decision to invest overseas are:

a) Trade barriers, imperfect labor market, and intangible assets

b) vertical integration, product life cycle, and shareholder diversification services

c) profit maximization, global prestige, and competition

d) a) and b)

3 The current spot exchange rate is $1.25 = €1.00 and the three-month forward rate is $1.30 = €1.00. Consider a three-month American call option on €62,500 with a strike price of $1.20 = €1.00. Immediate exercise of this option will generate a profit of

a) $6,125

b) $6,125/(1+i$)3/12

c) negative profit, so exercise would not occur

d) $3,125

4 For an American call option, A and B in the graph are

a) Time value and intrinsic value

b) Intrinsic value and time value

c) In-the-money and out-of-the money

d) None of the above

5 American Depository Receipt (ADRs) represent foreign stocks:

a) denominated in U.S. dollars that trade on European stock exchanges

b) denominated in U.S. dollars that trade on a U.S. stock exchange

c) denominated in a foreign currency that trade on a U.S. stock exchange

d) non-registered (bearer) securities

6 For European options, what of the effect of an increase in volatility?

a) Decrease the value of calls and puts ceteris paribus

b) Increase the value of calls and puts ceteris paribus

c) Decrease the value of calls, increase the value of puts ceteris paribus

d) Increase the value of calls, decrease the value of puts ceteris paribus

7 In the PBS special about Long-Term Capital Management, what events helped lead to the downfall of the hedge fund?

a) The Asian currency crisis

b) The events of 9/11

c) Russia...