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FIN – Finance

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Showing 1–3 of 10 questions

Question 1

A UK company has just provided a service to a US company for $750,000. Settlement is due in two months’ time and the UK company wants to hedge the risk of a fall in the value of the US dollar over the next two months. The following methods of hedging this risk have been suggested:

1. Buy sterling put options now

2. Buy sterling futures now

3. Buy sterling call options now

4. Sell sterling futures now

Which two of the above suggestions would provide a hedge against the exchange rate risk?

Select an option, then click Submit answer.

  • ○

    1 and 3
  • ○

    1 and 4
  • ○

    2 and 3
  • ○

    2 and 4
Question 2

Where there is capital rationing, the profitability index (PI) may be used to rank investment projects with a positive net present value. It has been claimed that using the PI is appropriate only when:

1) Capital rationing is for a single period.

2) The investment projects are indivisible.

Which ONE of the following combinations (true/false) is correct?

Select an option, then click Submit answer.

  • ○

    Statement 1 = True, Statement 2 = True
  • ○

    Statement 1 = True, Statement 2 = False
  • ○

    Statement 1 = False, Statement 2 = True
  • ○

    Statement 1 = False, Statement 2 = False
Question 3

Consider the following statements concerning financial options:

1. The time value of an option is the value assigned to the possibility that the price of the underlying item will move in favor of the option writer.

2. The time value of an option less its intrinsic value is equal to the option premium.

Which ONE of the following combinations (true/false) concerning the above statements is correct?

Select an option, then click Submit answer.

  • ○

    Statement 1 = True, Statement 2 = True
  • ○

    Statement 1 = True, Statement 2 = False
  • ○

    Statement 1 = False, Statement 2 = True
  • ○

    Statement 1 = False, Statement 2 = False