Anwer 5 MCQ with simple explanations:

6. Identify the true statement about currency futures contracts a. b. c. Futures contracts are not traded in organized markets. (1. E}. The design of futures contracts is more flexible than that o forward contracts. There exists futures contracts for every foreign currency. Hedging currency risk with futures contracts requires the use of regression analysis to compute the optimal hedge ratio. None of the above. 7. Identify the true statement about currency options. a. Currency options are not traded in organized markets. b. The value of a currency option can be lower than the market value of a forward contract whose forward rate is equal to the option's strike mice. The minimum pn'ce ofa currency call option should increase with the spot rate. The payoff of a currency call option is only positive when the spot rate at maturity is higher than the strike pnce. None of the above. 8. Identify the true statement about hedging currency risk: a. 9. Companies that do not operate in foreign countries are never exposed to exchange rate risk and therefore hedging would be useless. Using forward contracts to hedge the operating exposure of the future cashflows of a company cannot completely eliminate the uncer'ainty about future cashflows, but it helps to reduce the uncer'ainty. c. Contractual exposure cannot be hedged with forward contracts. (1. Hedging with fonvard contracts is not valuable for companies because their net present value at inception is zero. None of the above. 9. Identify the true statement about the international CAPM (InCAPM): a. b. d. E}. The lnCAPM model simply replaces the local market index by the S&P 500 index. The lnCAPM model simply adds the currency nsk factors to the standard (local) CAPM that uses the home country market index as a benchmark. The lnCAPM should be used to evaluate international projects in integrated market. The lnCAPM includes in the model a factor that accounts for political risk. None of the above. 10. Identify the true statement about currency arbitrage. a. Currency arbitrage does not require currency markets. b. There is a currency arbitrage opportunity when fonvard rates can be replicated with a strategy that combines currency spot market and the money markets of both the home country and the foreign country. Triangular currency arbitrage requires exploiting three different currencies in a way that we can sell a foreign currency at a higher price than the mice we accept to buy the same foreign currency. . Currency arbitrage only requires one transaction. Either selling or buying. None of the above