International Finance And Treasury - Study Mode

[#671] If risk of financial security decreases and supply curve shifts to right and downwards then impact on equilibrium of interest rate must
Correct Answer

(C) decreases

Explanation

Solution: If risk of financial security decreases and supply curve shifts to right and downwards then impact on equilibrium of interest rate must decreases. The equilibrium interest rate is the rate at which the quantity of money demanded is equal to the quantity of money supplied. The Federal Reserve can alter the equilibrium interest rate by adjusting the supply of money. The demand for money and supply of money can be graphed to determine the equilibrium interest rate.

[#672] For contingency exposure of foreign exchange, the best derivative that can be used to hedge is
Correct Answer

(C) Options

Explanation

Solution: For contingency exposure of foreign exchange, the best derivative that can be used to hedge is Options. Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell depending on the type of contract they hold the underlying asset.

[#673] Japan yen denominated Bond issued in Japan domestic Market
Correct Answer

(B) Samurai Bond

Explanation

Solution: A samurai bond is a yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.

[#674] An option at-the-money when
Correct Answer

(D) The strike price and the spot price are the same

Explanation

Solution: An option is at the money (ATM) if the strike price is the same as the current spot price of the underlying security. An at-the-money option has no intrinsic value, only time value. For example, with an "at the money" call stock option, the current share price and strike price are the same.

[#675] The intrinsic value of a Call option is
Correct Answer

(B) Underlying price - Strike Price

Explanation

Solution: The intrinsic value of a Call option is Underlying price - Strike Price. The intrinsic value of both call and put options is the difference between the underlying stock's price and the strike price. In the case of both call and put options, if the calculated value is negative, the intrinsic value is zero.