1. Everything else equal, call and put option premiums will be higher for currencies with high volatility

A. True

B. False

2. In order for locational arbitrager to be possible, the asking price at one bank must be less than the bid price at another bank.

A. True

B. False

3. Suppose that we start with an intimal exchange rate of $1.45/£, U.S. inflation turns out to be 5% this year and British inflation is 2%. If the new exchange rate is $1.43/£, we would characterize U.S. export competitiveness as having?

A. Impossible to tell with information given

B. Improved

C. Deteriorated

D. Remained constant

4. If you enter into an interest rate swap in which you receive floating and pay fixed, the fixed rate you pay is equal to the bank’s ask price

A. True

B. False

5. A longer time to maturity makes call options more valuable and put options less valuable.

A. True

B. False

6. Another name for a dummy variable gets called a binary variable.

A. True

B. False