Question

9. What is the most commonly used method to s e most commonly used method to settle a futures contract? A) The futures contract buyer delivery of the underlying asset. B) The futures contract seller usu contract buyer usually holds the contract to the maturity date and takes the es contract seller usually holds the contract to the maturity date and makes me delivery of the underlying asset to the counterpart. utures contract traders usually offset their initial futures positions before the expiration date and settle the gains or losses in cash. D) None of the above. 10. Special Drawing Rights (SDR) are: A) pegged its value to gold. portfolio of currencies and its value tends to be more stable than the currencies that it is comprised of. C) more volatile in its value than the major currencies, such as US dollar or Japanese yen. D) all of the above 11. If you think that the Japanese yen is going to appreciate against the dollar, you should A) buy put options on the Japanese yen. (B) buy call options on the Japanese yen. c) sell forward contracts on the Japanese yen. D) none of the above 12. The expected inflation rate in the U.S. is 3% next year, while the expected inflation rate in Japan is 1% next year. The spot rate of Japanese yen is ¥101 JPY/USD. According to the purchasing power parity theory, the Japanese Yen exchange rate is predicted to be in one year. A) 103 JPY/USD. B) 99.04 JPY/USD. C) 98.50 JPY/USD. D) None of the above. 13. Assume the nominal U.S. interest rate is 2% and the nominal Indian interest rate is 4%. According to the interest rate parity theory, the Indian Rupee will_ by about compared to the US dollar. A) appreciate; 2% B) depreciate; 2% C) appreciate; 6% D) depreciate; 6%

Answer 1

9) The most commonly used method to settle a futures contract : The futures contract traders usually offset their initial futures position before the expiration date and settle the gains or losses in cash.

The remaining options apply to forward contract.

Therefore, option C is correct.

10) Special drawing rights (SDR) are a portfolio of currencies and its value tends to be more stable than the currencies that it is comprised of.

Therefore, option B is correct.

11) If you think that Japanese yen is going to appreciate against dollar, you should : buy put options on the Japanese yen. For example, if 1$=108 Yen and then Yen appreciates say, 1$=102 Yen, in that case if we buy put options on Yen we would make profit buy buying put options.

Therefore, option A is correct.

12) The Japanese Yen exchange rate is predicted to be 99.04 JPY/USD

Calculation: (1.01/1.03)*101 = 99.04

Therefore, option B is correct.

13) Indian rupee will depreciate, by, 2% compared to the US dollar.

Therefore, option B is correct.