Q1.       Suppose the current spot rate for the BGL is $0.7427. A BGL 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

Q2.       A rise in the foreign interest rate will (ceteris paribus)

a.          raise the value of foreign-currency call options and reduce the value of foreign- currency put options

b.          raise the value of foreign-currency put options and reduce the value of foreign- currency call options

c.          raise the value of both foreign-currency put and call options

d.          reduce the value of both foreign-currency put and call options

Q3.       The spot and 180 day forward rates for the Danish Krone are $.3310 and $.3402,

respectively. The DKK is said to be selling at an annualised forward

a.          discount of 2.8%

b.          premium of 2.8%

c.          discount of 5.6%

d.          premium of 5.6%

Q4.       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

Q5.       The US price of a Big Mac is 2.20 USD and the Hong Kong price is 15.30 HKD.  If the

law of one price holds, the exchange rate between the two currencies in terms of a direct quote on the USD from a Hong Kong perspective is

a.        6.95

b.        0.144

c.        33.66

d.        13.10

Q6.       The inflation rates in the U.S. and Iceland are expected to be 4% per annum and 7% per

annum, respectively. If the current spot rate is $. 1050, then, according to Relative Purchasing Power Parity, the expected ISK / USD spot rate in three years is

a.        $.1150

b.        $.1112

c.        $.0964

d.        $.0992

Q7.       Suppose the price indexes in Mexico and the U.S., which both began the year at 100, are

at 160 and 103, respectively, by the end of the year. If the exchange rate began the year at          Mex$4.5 = $1 and ended the year at Mex$5.9 = $1, then the change in the real value of the peso during the year is

a.        - 15.6%

b.        5.0%

c.        18.5%

d.        8.2%

Q8.       Given a rate of GBP / USD 1.84301 / 1.84359. What would be the dealer’s current

indirect quotation on the pound?

a.        0.54242 / 0.54259

b.        0.54259 / 0.54242

c.        1.84301 / 1.84359

d.        1.84359 / 1.84301

Q9.       You are offered the following two quotations by independent dealers, one in Papua New

Guinea and one in the US. What arbitrage opportunity is available?

USD / PGK 2.9283 / 3.1104

PGK / USD 0.3302 / 0.3354

a.          4.3%

b.          3.4%

c.          2.7%

d.          None available.

Q10.     The current five year Yen rate is 6% per annum (compounded annually). The five year    Dollar rate is 8.5%. What is the implied forward premium or discount of the yen (over the current spot rate) for a five year forward contract?

a.        4. 17% premium

b.        18.46% discount

c.        11.00% discount

d.        12.36% premium

Q11.     A US hedger is considering buying an American type call option on the Australian

Dollar.  The hedger should expect to pay more with:

a.          An increase in the expected volatility of the exchange rate and a decrease in the length of time to maturity.

b.          An increase in the expected volatility of the exchange rate and an increase in the length of time to maturity.

c.          A decrease in the expected volatility of the exchange rate and a decrease in the length of time to maturity.

d.          A decrease in the expected volatility of the exchange rate and an increase in the length of time to maturity.

Q12.     If annualised interest rates in the U.S. and Switzerland are 10% and 4%, respectively, and the 90 day forward rate for the Swiss franc is $.3864, at what current spot rate will interest rate     parity hold?

a.        $.3902

b.        $.3874

c.        $.3807

d.        $.3792

Q13.     Suppose that a firm can borrow dollars at 8% or Burundi francs at 14%.  If the Burundi   franc is expected to move from USD / BIF 58 at the beginning of the year to USD / BIF 61 at the end of the year, then the expected dollar cost of the Burundi franc loan is

a)        8.39%

b)        20. 14%

c)        12.37%

d)        9. 15%

Q14.     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)         low volatility

Q15.     Suppose three year deposit rates on Dollars and Swiss Francs are 12% and 7%,             respectively. If the current spot rate for the Swiss franc is $0.3985, what is the spot rate implied by these interest rates for the franc three years from now?

a)        $0.4171

b)        $0.3807

c)        $0.3475

d)        $0.4570

Q16.     Suppose the current spot rate for the SGD is $0.5977.  The premium on a call option with an exercise price of $0.5800 is $0.0373.  What is the time value of one SGD 62,500 call option?

a)          $1,106.25

b)         $2,331.25

c)          $1,225.00

d)         $0

Q17.     The spot rate on the Dutch guilder is $0.39 and the 180 day forward rate is $0.40. The difference between the spot and forward rates means that

a)          interest rates are higher in the U.S. than in the Netherlands

b)         the guilder has risen in relation to the dollar

c)          the inflation rate in the Netherlands is declining

d)         the guilder is expected to fall in value relative to the dollar

Q18.     If expected inflation is 20% and the real expected rate of return is 10%, then the

definition of the real interest rate says that the nominal interest rate should be exactly