Couple Multiple Choice Questions on Options and Hedging (1)(TRUE OR FALSE) An ex
ID: 2735232 • Letter: C
Question
Couple Multiple Choice Questions on Options and Hedging
(1)(TRUE OR FALSE) An exporter faced with exposure to a depreciating currency can reduce transaction exposure with a lead strategy?
(2)If you have a foreign currency denominated recievable, you can hedge with:
(A)Long position in a currency forward contract
(B)Long position in a put option
(C)Borrow the home currency today and investing it in the foreign currency
(D) None of the above
(3)(TRUE OR FALSE) For a call option with 3 months till expiration, the premium should be zero if its intrinsic value is zero
(4)IF a compnay has Euro 7 million receivable and Euro 15 million payable both maturing in 1 year, dtermine net exposure in the foreign exchange market:
(A)Company A has no exposure bc the exchange rate between Euro and dollar is fixed
(B)Company A has a net exposure of Euro 8 million payable
(C)Company has anet exposure of Euro 8 million receivable
(D)Company A has net exposrue of Euro 22 million
(5)American call option on euro with 6-months until maturity at $.66 per Euro (the premium). The exercise price is $1.6212 and sport price $1.6253. Determing the intrinsic value and time value of the option:
(A)Intrinsic value is 0 and time value $.66
(B)Intrinsic value is $.41 and time value is 0
(C)Intrinsic value is $.66 and no time value
(D)Inrtinsic value is $.41 and time value is $.25
Explanation / Answer
Answer:1 False
An exporter faced with exposure to a depreciating currency can reduce transactionexposure with a strategy of Paying late, collecting early.
Because Lead strategy means collecting or paying early.