Reference no: EM133119904

1. Forecasting may enable a firm to make a decision that will increase its cash flows. Kin Inc., based in Thailand, plans to pay for machinery imported from Europe in 180 days. If the forecasted value of the euro in 180 days is sufficiently above the 180-day forward rate, then Kin Inc. may decide not to hedge.

True

False

2. You buy a US dollar futures contract on the Thailand Futures Exchange. The futures price is 30 baht per dollar. Before settlement you decide to close out your position by selling the identical contract. However, the futures price has increased to 30.3 baht per dollar. 1,000 US dollars underly one futures contract. You will gain:

a. 200 baht
b. 300 baht
c. 600 baht
b. 1000 baht

3. If one anticipates that the U.S. dollar is going to depreciate against the baht, one might speculate by _______ U.S. dollar put options or ______ U.S. dollar call options.

a. selling, buying
b. buying, buying
c. buying, selling
d. selling, selling

4. If the spot rate of the Singapore dollar is 25 Thai baht and the 90-day forward rate of the Singapore dollar is 24.8 Thai baht, then the forward rate premium/discount of the Singapore dollar is:

a. -0.8%
b. 0.45%
c. -0.65%
d. 1.2%

5. Which of the following is an example of a Eurobond?

a. A Thai multinational corporation issues a bond in the U.S., denominated in baht

b. A Thai multinational corporation issues a bond in Thailand., denominated in U.S. dollars

c. A Thai multinational corporation issues a bond in the U.S., denominated in U.S. dollars

d. More than one answer is correct

6. A Thai multinational corporation has a wholly owned subsidiary in Europe. The subsidiary remits earnings in euros the parent in Thailand every 90 days. The euro earnings will be converted into Thai baht upon receipt. To hedge exchange rate risk, the firm would:

a. sell a 90-day forward contract on the euro.

b. buy a futures contract on the euro.

c. sell a 45-day forward contract on the euro.

d. buy a 90-day forward contract on the euro.

7. The law of one price (LOP) is referring to:

a. the composition of a standard commodity basket.

b. a legal condition imposed by the U.S. Commodity Futures Trading Commission.

c. the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain guaranteed profits.

d. the same or equivalent things trading at the same price across different locations or markets, precluding profitable arbitrage opportunities.

8. Locational, triangular, and covered interest arbitrage make the FX market a more orderly place.

True

False