Download GTU (Gujarat Technological University) MBA 2019 Winter 4th Sem 2840202 Risk Management Previous Question Paper
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA - SEMESTER ? IV EXAMINATION ? WINTER 2019
Subject Code: 2840202 Date: 2-12-2019
Subject Name: Risk Management
Time: 2.30 PM to 5.30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1
(a)
1.
Which of the parties in an option contract has limited profits but unlimited losses
6
A. Buyer B. Writer
C. Both of the above D. None of the above
2. The process of transferring price risk using a derivative contract is called?
A. Speculation B. Arbitrage
C. Hedging D Diversification
3 Which of the following shows the total number of outstanding futures
contract available for delivery at the time?
A. Volume B. Open Interest
C. Advance decline ratio D. None of the above
4.
An exporter faces currency risk in the scenario of
A. Appreciation of home currency B. Depreciation of home currency
C. Both of above D. None of above
5. Gama of an option is derived from which of the following?
A. Beta B. Delta
C. Theta D. Rho
6. The rate at which a bank sells foreign currency to a trader is called
A. Invert Rate B. Bid Rate
C. Repo Rate D. Ask Rate
Q.1 (b) 1. Maintenance Margin
2. Cross Hedging
3. Index future
4. Square off
04
Q.1 (c) Define and Differentiate forwards and futures. 04
Q.2 (a) What is a derivative? Briefly explain various types of derivate
products.
07
(b) Explain various Greek letters in Options 07
OR
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Page 1 of 3
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA - SEMESTER ? IV EXAMINATION ? WINTER 2019
Subject Code: 2840202 Date: 2-12-2019
Subject Name: Risk Management
Time: 2.30 PM to 5.30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1
(a)
1.
Which of the parties in an option contract has limited profits but unlimited losses
6
A. Buyer B. Writer
C. Both of the above D. None of the above
2. The process of transferring price risk using a derivative contract is called?
A. Speculation B. Arbitrage
C. Hedging D Diversification
3 Which of the following shows the total number of outstanding futures
contract available for delivery at the time?
A. Volume B. Open Interest
C. Advance decline ratio D. None of the above
4.
An exporter faces currency risk in the scenario of
A. Appreciation of home currency B. Depreciation of home currency
C. Both of above D. None of above
5. Gama of an option is derived from which of the following?
A. Beta B. Delta
C. Theta D. Rho
6. The rate at which a bank sells foreign currency to a trader is called
A. Invert Rate B. Bid Rate
C. Repo Rate D. Ask Rate
Q.1 (b) 1. Maintenance Margin
2. Cross Hedging
3. Index future
4. Square off
04
Q.1 (c) Define and Differentiate forwards and futures. 04
Q.2 (a) What is a derivative? Briefly explain various types of derivate
products.
07
(b) Explain various Greek letters in Options 07
OR
Page 2 of 3
(b) Sun TV futures contract has a lot size of 1,000 shares. Assume that
you take long position on one Sun TV futures contracts at INR
271.25 at 11 a.m. on September 6. Assume that the initial margin is
10% of the initial contract value and the maintenance margin is 8% of
the initial margin. The following table shows the settlement prices on
the days of trading between September 6 and September 10. You
close out your position on September 10. Prepare a table showing the
daily margin balances in your account.
Date Settlement Value of the Index (INR)
September 6 271.25
September 7 273.80
September 8 276.90
September 9 272.50
September 10 272.10
07
Q.3 (a) Explain these terms: In the Money, Out of Money and At the money
with suitable examples for both call and put options.
07
(b) The S&P CNX Nifty index value on April 1 is 4,950 points, and there
is a futures contract available on this index with expiry in June and a
maturity of 86 days. If the risk-free rate is 6% per annum and the
CNX Nifty dividend yield is 2%, calculate the futures price of the
CNX Nifty on April.
07
OR
Q.3 (a) What do you understand by Perfect Hedge and Imperfect Hedge?
Discuss the key factors responsible for imperfect hedge.
07
(b) The BSE 30 Sensex is at 15,600 points on April 1. There is a June
futures on BSE 30 Sensex with 88 days to maturity. The risk-free rate
is 6%, and the BSE 30 Sensex has a dividend yield of 3%. The futures
are trading at 15,800 points on April 1. Is there an arbitrage
opportunity? If so, how can you arbitrage and what would be your
arbitrage profit?
07
Q.4 (a) What is Options contract? Explain the factors affecting options
pricing.
07
(b) A security is selling at Rs 400 and call and put options are available
on the stock with a maturity of 90 days and an exercise price of Rs
420. The call is selling at Rs 6, and the risk-free rate is 8% per annum.
According to put ?call parity, what should the put sell for? Assume
that the stock does not pay any dividend during the life of the option.
07
OR
Q.4 (a) Briefly explain straddle and strangle option strategies with suitable
examples.
07
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Page 1 of 3
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA - SEMESTER ? IV EXAMINATION ? WINTER 2019
Subject Code: 2840202 Date: 2-12-2019
Subject Name: Risk Management
Time: 2.30 PM to 5.30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1
(a)
1.
Which of the parties in an option contract has limited profits but unlimited losses
6
A. Buyer B. Writer
C. Both of the above D. None of the above
2. The process of transferring price risk using a derivative contract is called?
A. Speculation B. Arbitrage
C. Hedging D Diversification
3 Which of the following shows the total number of outstanding futures
contract available for delivery at the time?
A. Volume B. Open Interest
C. Advance decline ratio D. None of the above
4.
An exporter faces currency risk in the scenario of
A. Appreciation of home currency B. Depreciation of home currency
C. Both of above D. None of above
5. Gama of an option is derived from which of the following?
A. Beta B. Delta
C. Theta D. Rho
6. The rate at which a bank sells foreign currency to a trader is called
A. Invert Rate B. Bid Rate
C. Repo Rate D. Ask Rate
Q.1 (b) 1. Maintenance Margin
2. Cross Hedging
3. Index future
4. Square off
04
Q.1 (c) Define and Differentiate forwards and futures. 04
Q.2 (a) What is a derivative? Briefly explain various types of derivate
products.
07
(b) Explain various Greek letters in Options 07
OR
Page 2 of 3
(b) Sun TV futures contract has a lot size of 1,000 shares. Assume that
you take long position on one Sun TV futures contracts at INR
271.25 at 11 a.m. on September 6. Assume that the initial margin is
10% of the initial contract value and the maintenance margin is 8% of
the initial margin. The following table shows the settlement prices on
the days of trading between September 6 and September 10. You
close out your position on September 10. Prepare a table showing the
daily margin balances in your account.
Date Settlement Value of the Index (INR)
September 6 271.25
September 7 273.80
September 8 276.90
September 9 272.50
September 10 272.10
07
Q.3 (a) Explain these terms: In the Money, Out of Money and At the money
with suitable examples for both call and put options.
07
(b) The S&P CNX Nifty index value on April 1 is 4,950 points, and there
is a futures contract available on this index with expiry in June and a
maturity of 86 days. If the risk-free rate is 6% per annum and the
CNX Nifty dividend yield is 2%, calculate the futures price of the
CNX Nifty on April.
07
OR
Q.3 (a) What do you understand by Perfect Hedge and Imperfect Hedge?
Discuss the key factors responsible for imperfect hedge.
07
(b) The BSE 30 Sensex is at 15,600 points on April 1. There is a June
futures on BSE 30 Sensex with 88 days to maturity. The risk-free rate
is 6%, and the BSE 30 Sensex has a dividend yield of 3%. The futures
are trading at 15,800 points on April 1. Is there an arbitrage
opportunity? If so, how can you arbitrage and what would be your
arbitrage profit?
07
Q.4 (a) What is Options contract? Explain the factors affecting options
pricing.
07
(b) A security is selling at Rs 400 and call and put options are available
on the stock with a maturity of 90 days and an exercise price of Rs
420. The call is selling at Rs 6, and the risk-free rate is 8% per annum.
According to put ?call parity, what should the put sell for? Assume
that the stock does not pay any dividend during the life of the option.
07
OR
Q.4 (a) Briefly explain straddle and strangle option strategies with suitable
examples.
07
Page 3 of 3
(b) A share is selling at Rs 2500 on January 1. It has a call option with
maturity on March 31 with an exercise price of Rs 2700.This option is
selling for Rs 85.
i) If on Feb, 14, the share Price is Rs 2540 what is the intrinsic value
of this option on this day? Is the option in the money? Would you
exercise this option on Feb, 14? Explain.
ii) If on Feb 14, the share price is Rs 2820 what is the intrinsic value
of this option on this day? Is the option in the money? Would you
exercise this option on Feb, 14? Explain.
07
Q.5 Alma Mettles Limited is a trader in aluminum and related products.
On May 10, Alma Mettles Limited estimates that it will require 60
MT of aluminum on June 5.Both the spot and future contracts for
aluminum are quoted in Indian Rupees per kg. The spot price of
aluminum on May 10 is Rs 89.50. Through the experiences over the
years the company has realized that it is wise strategy to hedge as
the aluminum prices are very volatile. It has decided to hedge this
price risk using aluminum futures in MCX India. The futures
contracts are available with delivery on June 20, with a futures price
of Rs 90.90. The contract size for the aluminum futures is 5 MT. The
finance manager of the company has estimated that the standard
deviation of changes in the spot price is 10, the standard deviation of
changes in the futures price is 11, and the correlation between the
changes in the spot price and futures price is 0.96.You are required to
answer the following questions
i.) Should Alma Mettles Limited go for long position or short
position in aluminum futures?
ii) How many number of contracts should it undertake?
iii) If the spot price of aluminum on June 5 is Rs 91.25 and the
futures price on June 5 is Rs 92.40 , what is the result of the hedge
when compared to not hedging the exposure with
futures?
14
OR
Q.5
There are two companies that belong to the same industry but are having
operations in different territories. They both are planning to borrow funds
for further expansion.
Company A can borrow at a fixed rate of 8% or at a floating rate of MIBOR
+ 150 basis points. Company B can borrow at a fixed rate of 9% or at a
floating rate of MIBOR + 50 basis points.
Show that these two companies can improve their position through an
interest rate swap. Also show gains that can be availed by both the parties
through such swap.
*************
14
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This post was last modified on 19 February 2020