#1
Which of the following is NOT a foreign exchange option strategy?
Iron Condor
ExplanationA neutral strategy that involves selling both an out-of-the-money put and an out-of-the-money call.
#2
What is the primary advantage of using foreign exchange options?
Limited risk
ExplanationAllows traders to cap their potential losses to the premium paid for the option.
#3
Which of the following is an example of a currency option?
Put option
ExplanationAn option that gives the holder the right to sell a specified amount of currency at a specified price within a specified period.
#4
What is a covered call in foreign exchange options trading?
Selling a call option on a currency pair you already own
ExplanationA conservative strategy where the trader holds a long position in an asset and sells call options on that same asset.
#5
What is the difference between a call option and a put option in foreign exchange?
A call option gives the holder the right to buy a currency, while a put option gives the holder the right to sell a currency.
ExplanationCall options allow the holder to buy the underlying asset at a specified price, while put options allow selling at a specified price.
#6
Which factor does NOT influence the price of a foreign exchange option?
Currency denomination
ExplanationCurrency denomination does not directly affect the price of an option.
#7
What does 'in the money' mean for a foreign exchange option?
The option is currently profitable if exercised
ExplanationThe option's intrinsic value is positive.
#8
In the context of foreign exchange options, what is 'implied volatility'?
The volatility implied by the price of the options contract
ExplanationReflects the market's expectations of future volatility.
#9
What is a barrier option in foreign exchange?
An option that becomes active only if a certain price barrier is breached
ExplanationContains an additional condition for the option to become active or inactive.
#10
What is the main difference between European-style options and American-style options?
European-style options can only be exercised on the expiration date, while American-style options can be exercised at any time before expiration.
ExplanationTiming of exercise differs, with European options only exercisable at maturity.
#11
What is delta in the context of foreign exchange options?
The rate of change of the option price with respect to changes in the underlying currency pair's spot rate
ExplanationMeasures the sensitivity of the option price to changes in the underlying asset's price.
#12
What is a strangle strategy in foreign exchange options trading?
Buying both a call and a put option with different strike prices but the same expiration date
ExplanationA strategy used when the trader expects significant price volatility but is uncertain about the direction.