International Financial

Fundamentals of Multinational Finance, 5e (Moffett et al.)

Chapter 7 Foreign Currency Derivatives and Swaps

Multiple Choice and True/False Questions

7.1 Foreign Currency Futures

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

A) speculation.

B) hedging.

C) human resource management.

D) A and B above.

Answer: D

Diff: 1

Topic: 7.1 Foreign Currency Futures

Skill: Recognition

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

Diff: 1

Topic: 7.1 Foreign Currency Futures

Skill: Recognition

3) All futures contracts are between the client and the exchange clearing house thus effectively eliminating specific counterparty risk at delivery date.

Answer: TRUE

Diff: 1

Topic: 7.1 Foreign Currency Futures

Skill: Recognition

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

Answer: TRUE

Diff: 1

Topic: 7.1 Foreign Currency Futures

Skill: Recognition

5) 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

Diff: 1

Topic: 7.1 Foreign Currency Futures

Skill: Recognition

6) 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) All of the above are specified.

Answer: D

Diff: 1

Topic: 7.1 Foreign Currency Futures

Skill: Recognition

7) 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

Diff: 1

Topic: 7.1 Foreign Currency Futures

Skill: Recognition

8) Futures contracts require that the purchaser...