Ch004

2362 Words Apr 29th, 2013 10 Pages
FINA 5331 Quiz #4

Name: __________________________ Date: _____________

1. Covered Interest Parity (CIP) is best defined as: A) When a government brings its domestic interest rate in line with other major financial markets B) When the central bank of a country brings its domestic interest rate in line with its major trading partners C) An arbitrage condition that must hold when international financial markets are in equilibrium D) None of the above

2. When Covered Interest Parity (CIP) holds between two different countries X and Y, your decision to invest your money will: A) B) C) D) be indifferent between country X and country Y involve a forward hedging depend on which country initiated the IRP a and b

3. When Covered Interest
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An investor believes that the price of a stock, say IBM 's shares, will increase in the next 60 days. If the investor is correct, which combination of the following investment strategies will show a profit in all the choices? (i) buy the stock and hold it for 60 days (ii) buy a put option (iii) sell (write) a call option (iv) buy a call option (v) sell (write) a put option A) B) C) D) (i), (ii), and (iii) (i), (ii), and (iv) (i), (iv), and (v) (ii) and (iii)

Today 's settlement price on a Chicago Mercantile Exchange (CME) Yen futures contract is $0.8011/¥100. Your margin account currently has a balance of $2,000. The next three days ' settlement prices are $0.8057/¥100, $0.7996/¥100, and $0.7985/¥100. (The contractual size of one CME Yen contract is ¥12,500,000).

15. If you have a short position in one futures contract, the changes in the margin account from daily marking-to-market will result in the balance of the margin account after the third day to be: A) B) C) D) $1,425 $2,000 $2,325 $3,425

16. If you have a long position in one futures contract, the changes in the margin account from daily marking-to-market, will result in the balance of the margin account after the third day
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