Download JNTUH (Jawaharlal Nehru Technological University Hyderabad) MBA (Master of Business Administration) 4th Semester (Fourth Semester) R15 2018 Dec 724AH Financial Derivatives Previous Question Paper
Code No: 724AH
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA IV Semester Examinations, December - 2018
FINANCIAL DERIVATIVES
Time: 3hours Max.Marks:75
Note: This question paper contains two parts A and B.
Part A is compulsory which carries 25 marks. Answer all questions in Part A. Part B
consists of 5 Units. Answer any one full question from each unit. Each question
carries 10 marks and may have a, b, c as sub questions.
PART - A 5 ? 5 marks = 25
1.a) What are the types of traders in derivative market? [5]
b) What is cross hedging? [5]
c) Explain briefly the issues in option trading in India. [5]
d) How do commodity market derivatives contribute to economy? [5]
e) What are differential swaps? [5]
PART - B 5 ? 10 marks = 50
2.a) Explain the difference between long forward position and short forward position.
b) A trader writes December put option with a strike price of $30. The price of the
option is $4. Under what circumstances does the trader make a gain? [5+5]
OR
3.a) The current price of a stock is $94, and a 3-month European call options with a strike
price of $95 currently sell for 4.70. An investor who feels that the price of the stock
will increase is trying to decide between buying 100 shares and buying 2000 call
options (=20 contracts). Both strategies involve a investment of $ 9,400. What advice
would you give? How high does the stock price have to rise for the option strategy to
be more profitable?
b) Explain why a forward contract can be fo r either speculation or hedging. [6+4]
4.a) ?For an asset where future prices are usually less than spot prices, long hedges are
likely to be attractive?. Discuss the implication of the statement.
b) A company has Rs. 2 million portfolio with a beta of 1.2. It would like to use futures
contracts on the Nifty 50 to hedge its risk. The index is currently standing at 4200 and
each contract is for delivery of Rs. 200 times the index. What is the hedge that
minimizes risk? What should the company do if it wants to reduce the beta of the
portfolio to 0.6? [5+5]
OR
5.a) A deposit account pays 12% per annum with continuous compounding, but interest is
actually paid quarterly. How much interest will be paid each quarter on a 10,000
deposit?
b) The price of 90-day Treasury bill is quoted as 10.00. What continuously compounded
return (on actual/365 basis) does an investor earn on the Treasury bill for the 90-day
period? [4+6]
R15
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Code No: 724AH
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA IV Semester Examinations, December - 2018
FINANCIAL DERIVATIVES
Time: 3hours Max.Marks:75
Note: This question paper contains two parts A and B.
Part A is compulsory which carries 25 marks. Answer all questions in Part A. Part B
consists of 5 Units. Answer any one full question from each unit. Each question
carries 10 marks and may have a, b, c as sub questions.
PART - A 5 ? 5 marks = 25
1.a) What are the types of traders in derivative market? [5]
b) What is cross hedging? [5]
c) Explain briefly the issues in option trading in India. [5]
d) How do commodity market derivatives contribute to economy? [5]
e) What are differential swaps? [5]
PART - B 5 ? 10 marks = 50
2.a) Explain the difference between long forward position and short forward position.
b) A trader writes December put option with a strike price of $30. The price of the
option is $4. Under what circumstances does the trader make a gain? [5+5]
OR
3.a) The current price of a stock is $94, and a 3-month European call options with a strike
price of $95 currently sell for 4.70. An investor who feels that the price of the stock
will increase is trying to decide between buying 100 shares and buying 2000 call
options (=20 contracts). Both strategies involve a investment of $ 9,400. What advice
would you give? How high does the stock price have to rise for the option strategy to
be more profitable?
b) Explain why a forward contract can be fo r either speculation or hedging. [6+4]
4.a) ?For an asset where future prices are usually less than spot prices, long hedges are
likely to be attractive?. Discuss the implication of the statement.
b) A company has Rs. 2 million portfolio with a beta of 1.2. It would like to use futures
contracts on the Nifty 50 to hedge its risk. The index is currently standing at 4200 and
each contract is for delivery of Rs. 200 times the index. What is the hedge that
minimizes risk? What should the company do if it wants to reduce the beta of the
portfolio to 0.6? [5+5]
OR
5.a) A deposit account pays 12% per annum with continuous compounding, but interest is
actually paid quarterly. How much interest will be paid each quarter on a 10,000
deposit?
b) The price of 90-day Treasury bill is quoted as 10.00. What continuously compounded
return (on actual/365 basis) does an investor earn on the Treasury bill for the 90-day
period? [4+6]
R15
6.a) What is the difference between a strangle and a straddle?
b) A call option with a strike price of Rs. 100 costs Rs. 5. A put option with a strike
price of Rs. 98 costs. Rs. 4. Explain how a strangle can be created from these two
options. What is the pattern of profit from the strangle? [5+5]
OR
7.a) What are the factors that affect stock option prices?
b) Consider a 5 year employee stock option on a non-dividend paying stock. The option
can be exercised at any time after the end of the first year. Unlike a regular exchange
traded call option, the employee stock option cannot be sold. What is the likely
impact of this restriction on the early-exercise decision? [5+5]
8.a) Explain briefly the features of commodity markets.
b) An investor enters into one long July futures contracts on orange juice. Each contract
is for the delivery of 1500 litres. The current futures price is Rs.35 per litre, the initial
margin is Rs.10,000 per contract, and the maintenance margin is Rs. 8000. What price
change would lead to a margin call? Under what circumstances could Rs.2000 be
withdrawn from the margin account? [5+5]
OR
9.a) A company enters into a short futures contract to sell 5000 bushels of wheat for 450
cent per bushel. The initial margin is $3000 and the maintenance margin is $ 2000.
What price change would lead to a margin call? Under what circumstances could
$1500 would be withdrawn from the margin account?
b) Briefly touch upon the commodity futures market in India. [5+5]
10.a) Explain the difference between the credit risk and the market risk in a financial
market.
b) A currency swap has a remaining life of 15 months. It involves exchanging interest at
10% on ? 20 million for interest at 6% on $ 30 million once a year. The term
structures of interest rates in both the United Kingdom and the United States is
currently flat and it the swap were negotiated today the interest rates exchanged
would be 4% on dollars and 7% in sterling. All interest rates are quoted with annual
compounding. The current exchange rate (dollars per pound sterling) is 1.8500. What
is the value of the swap to the party paying sterling? What is the value of the swap to
the party paying dollars? [4+6]
OR
11.a) Explain why a bank is subject to credit risk when it enters into two offsetting swap
contracts.
b) The 1 year LIBOR rate is 10%. A bank trades swaps where a fixed rate of interest is
exchanged for a 12 month LIBOR with payment being exchanged annually. The
2- and 3- year swap rates (expressed with annual compounding) are 11% and 12% per
annum. Estimate the 2-and 3-year LIBOR zero rates. [5+5]
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This post was last modified on 23 October 2020