If the Canadian dollar became stronger relative to the U.S. dollar, the price of

Question

If the Canadian dollar became stronger relative to the U.S. dollar, the price of

A) a call option on the Canadian dollar will increase.

B) a put option on the Canadian dollar will increase.

C) a call option on the Canadian dollar will decrease.

D) both the call and the put options on the Canadian dollar will decrease.

Writers of option contracts

A) have a limited liability specified in the contract.

B) hope to exercise the option on favorable terms.

C) earn a commission no matter what subsequently happens to the contract.

D) earn a profit when the option expires without being exercised.

The two provisions which investors should carefully consider when evaluating stock options are the

A) strike price and the exchange ratio.

B) time until expiration and the strike price.

C) leverage ratio and the time to maturity.

D) premium and the discount.

Rex bought a put on Alpha stock with a strike price of $35 when the market price of Alpha stock was $33 a share. Alpha is currently selling at $34 a share. Which of the following statements are true given this information?

I.   Rex's option is worth at least $100 today.

II.   Rex's option is worthless today.

III.   Rex's option has more value today than when he bought it.

IV.   Rex's option has less value today than when he bought it.

A) I and III only

B) I and IV only

C) II and III only

D) II and IV only

Explanation / Answer

1)If the Canadian dollar became stronger relative to the U.S. dollar, the price of

A) a call option on the Canadian dollar will increase

2)Writers of option contracts

D) earn a profit when the option expires without being exercised.

3) The two provisions which investors should carefully consider when evaluating stock options are the

B) time until expiration and the strike price.

4)Rex bought a put on Alpha stock with a strike price of $35 when the market price of Alpha stock was $33 a share. Alpha is currently selling at $34 a share. Which of the following statements are true given this information?

B) I and IV only

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