Download JNTUH MBA 4th Sem 2019 April Financial Derivatives Question Paper

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Question Paper Code: CMB421

MBA IV Semester End Examinations (Regular) - April, 2019

Regulation: R16

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FINANCIAL DERIVATIVES

(MBA)

Time: 3 Hours

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Max Marks: 70

Answer ONE Question from each Unit

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All Questions Carry Equal Marks

All parts of the question must be answered in one place only

UNIT - I

1. 1. Explain the classifications of derivatives that are trading in Indian derivative market. [7M]

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   2. Summarize the importance of the hedgers, speculators and arbitrageurs in derivative market. [7M]
2. 1. List out the different features of financial derivatives to strengthen the Indian financial system. [7M]
   2. What are the functions of derivative market and list out the uses of derivatives. [7M]

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UNIT - II

3. 1. Explain future contract specifications in detail. [7M]
   2. Using the following data, prepare the margin account of the investor. Assume that if a margin call is made at any time, the investor would deposit the amount called for.
      Position: Short
      

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      Contract Size: 500 units.
      No. of contracts: 8
      Initial Margin: 12%
      Maintenance margin: 3/4ths of initial margin
      Date of contract: June 3
      

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      Unit Price: Rs 22 [7M]
      

      Table 1

      Date	Jun 4	Jun 5	Jun 6	Jun 7	Jun 10	Jun 11	Jun 12
      Price (Rs)	22.30	23.10	22.90	23.00	23.15	22.85	22.95

4. 1. Differentiate forwards and futures contract that are used in financial derivatives. [7M]
   2. Calculate the price of 100 forward contract using the following information. Price of share Rs 75. Time to expiration 9months. Dividend expected Rs 2.20per share. Time to dividend 4 months. Continuously compounded risk free rate of interest is 12%. [7M]

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UNIT III

5. 1. Write a brief note on principle of option pricing methods. [7M]
   2. How can a butterfly spread be created by using the following three put options (with same expiration dates)?
      

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      Option 1: Exercise price Rs70 Price = Rs 6
      Option 2: Exercise price Rs75 Price Rs 9
      Option 3: Exercise price Rs80 Price = Rs 14 [7M]
      Determine the range of stock prices within which losses would be made by the buyer of the options.

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6. 1. Examine the basic and advanced option strategies to improve the derivative market system. [7M]
   2. Using the Black and Scholes model and the principle of put-call parity, obtain the values of call and put options from the following data:
      Price of the share = Rs 124
      Exercise price = Rs 130
      Time to maturity = 4 months
      

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      Risk- free rate of return = 12% p.a. [7M]
      Standard deviation of the distribution of the continuously compounded rate of return on the stock = 0.5. also state whether each of the options is in-the-money or out-of-the money, and decompose the values of each one into intrinsic value and time value.

UNIT - IV

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7. 1. Explain the different types of risks associated with commodity derivatives. [7M]
   2. Discuss the commodity markets and its participants criteria in Indian derivative market. [7M]
8. 1. What are the benefits of commodity futures for the industry and exchange members. [7M]
   2. How the investors play a vital role in commodity derivative market? Explain in detail. [7M]

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UNIT - V

9. 1. Explain in detail about the rationality behind swapping mechanism in international market. [7M]
   2. Explain valuation of currency swaps and exchange rate mechanisms. [7M]

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10. 1. Discuss the step by step procedures involved in “credit default swaps trading system". [7M]
    2. A credit default swap requires a premium of 60 basis points per year paid semiannually. The principal is $300 million and the credit default swap is settled in cash. A default occurs after 4 years and 2 months, and the calculation agent estimates that the price of the reference bond is 40% of its face value shortly after the default. List the cash flows and their timing for the seller of the credit default swap. [7M]



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