Derivatives 200079 Midsemester Exam
UNIVERSITY OF WESTERN SYDNEY
School of Economics and Finance
200079 Derivatives
INTERIM TEST (KEY)
PARRAMATTA
Spring Session 2012
TIME ALLOWED: 1 hour
FORMAT: 20 multiple-choice questions
WEIGHTING OF EXAMINATION: 30%
SUBJECT CO-ORDINATOR: Dr. I. Nalson
SCIENTIFIC (NON-PROGRAMMABLE) CALCULATORS AND FOREIGN LANGUAGE
DICTIONARIES ARE PERMITTED
NAME: ____________________________________
STUDENT NUMBER:__________________________
TUTORIAL TIME ____________________________
Instructions to candidates:
THIS IS A CLOSED BOOK EXAMINATION
MULTIPLE-CHOICE QUESTIONS
NB: Indicate the answer you think is correct on the computerised sheet
1. The price of a currency forward contract is less than the current spot price (the foreign currency is at a discount). If the contract price is theoretically correct
A: rf ( rd
B : rf = rd
C: rf ( rd*
D: We cannot tell on the available information
NB: rf = foreign interest rate; rd = domestic interest rate
The foreign currency is selling at a discount; therefore the foreign interest rate must be higher
2. The spot price of gold is $ 890 per ounce. The interest rate (with annual compounding) is 12% per annum. The gold lending rate (gold fee) is 2% per annum payable in arrears at maturity of the forward contract. What is the theoretical one-year forward price of gold to two decimal places?
A: $ 960.68
B: $ 991.68
C: $ 977.25*
D: None of the above
$890(1 + 0.12)/1.02 = $977.25
3. If the forward price of gold in the previous question is $ 970.68 (other values unchanged), calculate the arbitrage profit per ounce of gold that can be achieved.
A: $6.57*
B: $8.56
C: $7
D: None of the above
Borrow and sell gold at $890
Invest proceeds (paying the gold fee) earning: $890(1 + 0.12)/1.02 = $977.25, having bought gold forward at $970.68. Profit = $977.25 - $970.68 = $6.57 per ounce.
4. An investor receives
School of Economics and Finance
200079 Derivatives
INTERIM TEST (KEY)
PARRAMATTA
Spring Session 2012
TIME ALLOWED: 1 hour
FORMAT: 20 multiple-choice questions
WEIGHTING OF EXAMINATION: 30%
SUBJECT CO-ORDINATOR: Dr. I. Nalson
SCIENTIFIC (NON-PROGRAMMABLE) CALCULATORS AND FOREIGN LANGUAGE
DICTIONARIES ARE PERMITTED
NAME: ____________________________________
STUDENT NUMBER:__________________________
TUTORIAL TIME ____________________________
Instructions to candidates:
THIS IS A CLOSED BOOK EXAMINATION
MULTIPLE-CHOICE QUESTIONS
NB: Indicate the answer you think is correct on the computerised sheet
1. The price of a currency forward contract is less than the current spot price (the foreign currency is at a discount). If the contract price is theoretically correct
A: rf ( rd
B : rf = rd
C: rf ( rd*
D: We cannot tell on the available information
NB: rf = foreign interest rate; rd = domestic interest rate
The foreign currency is selling at a discount; therefore the foreign interest rate must be higher
2. The spot price of gold is $ 890 per ounce. The interest rate (with annual compounding) is 12% per annum. The gold lending rate (gold fee) is 2% per annum payable in arrears at maturity of the forward contract. What is the theoretical one-year forward price of gold to two decimal places?
A: $ 960.68
B: $ 991.68
C: $ 977.25*
D: None of the above
$890(1 + 0.12)/1.02 = $977.25
3. If the forward price of gold in the previous question is $ 970.68 (other values unchanged), calculate the arbitrage profit per ounce of gold that can be achieved.
A: $6.57*
B: $8.56
C: $7
D: None of the above
Borrow and sell gold at $890
Invest proceeds (paying the gold fee) earning: $890(1 + 0.12)/1.02 = $977.25, having bought gold forward at $970.68. Profit = $977.25 - $970.68 = $6.57 per ounce.
4. An investor receives