Page 143 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

International Financial Management

Notes 2. Explain briefly the mechanism of futures trading.
3. Give two important applications of futures.
4. How does the forward market differ from the futures and options markets?
5. Compare and contrast the forward and futures contracts.
6. How can currency futures be used by corporations?

7. How can currency futures be used by speculators?
8. When should a firm consider purchasing a call option for hedging?
9. When should a firm consider purchasing a put option for hedging?
10. Assume a US speculator sold a call option on German marks for $.02 per unit. The strike
price was $.36 and the spot rate at the time the mark was exercised was $.42. Assume the
speculator did not obtain marks until the option was exercised. Also assume there are
62,000 units in a German mark option. What was the net profit to the seller of the call
option?

Answers: Self Assessment

1. False 2. True
3. False 4. True
5. True 6. False
7. True 8. False
9. True 10. Hedging

11. underlying 12. Futures
13. Options 14. zero sum
15. Zero Leakage Option Instrument

8.10 Further Readings

Books Apte, P.G. International Financial Management, Tata McGraw Hill Publishing
Company Limited, New Delhi.
Bhalla, V.K. International Financial Management, Anmol Publishers.
Eun/Resnick, International Financial Management, Tata McGraw Hill Publishing
Company Limited, New Delhi.
Shapiro Allan C, Multinational Financial Management, Prentice Hall, New Delhi.

Online links http://club.ntu.edu.tw/~ntuib/contents/course/irg-answer/ch7.pdf

http://trade.imara.co/imara/products/Currency_Futures.pdf
http://www.investopedia.com/terms/c/currencyfuture.asp#axzz2NPqbiEIg

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