Question

roughly the amount of hich he or she is 13. Which of the following four positions will be profitable if the price of XYZ stock rises? 1. Buying a put on XYZ stock II. Buying XYZ stock III. Writing (or selling) a call on XYZ stock IV. Buying a call on XYZ stock A) II and III only B) II and IV only C) I and IV only D) I, II, and Ill only 14. Suppose that the Japanese yen is currently trading at a forward discount in the forward- exchange market. This implies that most likely, according to covered interest rate parity: A) This currency has low exchange-rate risk. B) This currency is gaining strength in relation to the dollar C) Level of interest rates must be higher in Japan than in the United States D) None of the above 15. Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in: A) An increase in the average collection period. B) A decrease in bad debt losses. C) An increase in sales. D) Higher profits.

Answer 1

Answer 13

When price of XYZ is Expected to rise, there will be Profit of we Buy XYZ stock. Also if we Buy call option on XYZ stock we will have profits, if Stock price rises. So both will have Profit, if Stock price rises.

So Answer is

B

II and IV only.

Answer 14

As per Uncovered Interest Rate parity, if a Currency is trading at forward Discount in forward market, then this Currency will have Higher ínterest rate with respect to other Currency, so that There is Equal gain if invest in any of Currency. In other words, there is no difference in gain from investing in any Currency..

So Currency trading at forward Discount means level of interest rate must be higher in Japan than that of United States.

Answer 15

If credit period of accounts receivables is increased, then amount will be received in 60 days rather than 30 days. So Aveage collection period will increase. Also profits will decrease, as our interest cost will Increase. It is not necessary that sales to increase or bad debts to decrease. But one thing will definitely happen that Average collection period will increase.

So answer is A