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Commodity Derivatives and Risk Management - Assessment

1) The document is an assessment for a course on Commodity Derivatives and Risk Management. It contains 15 multiple choice questions testing concepts related to commodity exchanges, futures contracts, risk management using derivatives, and warehouse receipts. 2) The questions cover topics such as how auctions work in commodity spot exchanges, hedging using futures contracts for farmers and traders, functions of a clearing house, delivery processes and pricing of futures contracts, calculating volatility and value at risk, position limits, and situations like short squeezes. 3) Correct answers are required to be selected for questions related to standardization of futures contracts, calculation of open interest, open position limits for clients vs members, and delivery processes under

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Lokesh mangla
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364 views4 pages

Commodity Derivatives and Risk Management - Assessment

1) The document is an assessment for a course on Commodity Derivatives and Risk Management. It contains 15 multiple choice questions testing concepts related to commodity exchanges, futures contracts, risk management using derivatives, and warehouse receipts. 2) The questions cover topics such as how auctions work in commodity spot exchanges, hedging using futures contracts for farmers and traders, functions of a clearing house, delivery processes and pricing of futures contracts, calculating volatility and value at risk, position limits, and situations like short squeezes. 3) Correct answers are required to be selected for questions related to standardization of futures contracts, calculation of open interest, open position limits for clients vs members, and delivery processes under

Uploaded by

Lokesh mangla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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7/31/2016

CommodityDerivativesandRiskManagementAssessment

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Assignment1
Dueon20160801,23:00IST
1) Aspotexchangeprovideseauctionfacilitytocommoditybuyersandsellers.Inthee
auction,abuyerwillchoose__________tobuyfromwhileasellerwillchoose
_________toselltheunderlyingcommodity.

Week1

LowestBidder,HighestBidder

Week2

HighestBidder,LowestBidder

Week3

Forum

MedianPriceBidder,AveragePriceBidder
AveragePriceBidder,MedianPriceBidder
2points
2) AtraderofSoybean(buysSoybeanfromfarmersandsellstheseatamargin)is
holdinginventoryoflastyearcrop.AfarmerisgoingtogethisSoybeanharvestwithin
next1month.Thetraderis__________assetandwouldmitigatethepriceriskby
enteringinto_________forwardpositionwhilethefarmeris______________asset
wouldmitigatethepriceriskbyenteringinto_________forwardposition.
Short,Long,Long,Short
Long,Short,Long,Short
Long,Long,Long,Long
Noneofthese.
2points
3) Differentfunctionsprovidedbyaclearinghouse:(ChoosetheINCORRECTone)
ClearingHousebecomescounterpartytoeachbuyerandeachsellerdoingaway
withthecreditrisk.
ThroughtheClearingHouse,Exchangeguaranteesthesettlementtoeachand
everycounterpartyevenintheeventanyoneofthecounterpartydefaults.
ClearingHouseisresponsibleforcollectingmarginfromtraders.
ClearingHousematchesbuyandsellordersgivenbytraders.
2points
4) ChoosetheCORRECTsequence/timelineforDeliveryDetails"inafuturescontract
specification:
Deliverypayinofcommodities,Deliverypayoutofcommodities,Payinoffunds,
Payoutoffunds
Deliverypayinofcommodities,Payinoffunds,Deliverypayoutofcommodities,

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payoutoffunds
Payinoffunds,Payoutoffunds,Deliverypayinofcommodities,Deliverypayout
ofcommodities
Deliverypayoutofcommodities,Payinoffunds,Payoutoffunds,Deliverypay
inofCommodities
2points
5) NormallyDueDateRate(DDR)/FinalSettlementPrice(FSP)foracommodityis:
Averageoflastfewdaysfuturesclosingpriceforthatcommodity.
Averageoflastfewdaysspotandfuturespriceforthatcommoditycollectedfrom
differentmarketsalloverIndia.
Averageoflastfewdaysspotpriceforthatcommoditycollectedfromaspecific
market.
TheexchangeusesitsowninternalmodeltoarriveatDDR/FSP
2points
6) IdentifytheINCORRECTstatement
Futurescontractsarestandardizedincommodityexchanges
Allopenpositionsontheexpirymustbesettledincash
ClearingHouseassumescounterpartyriskforeachandeverytradeundertakenin
anexchangeplatform
Commodityderivativecontractsderivetheirvaluefromspotcontracts.
2points
7) CurrentpriceofanassetisINR1900.ValueatRisk(VaR)ofthatassetisINR300
overaweekwith98%confidence.Itmeansthatthereis_____%probabilitythatthe
assetwouldlose_______over_____.
2%,INR300,aweek
98%,INR1900,aweek
2%,INR1900,aweek
98%,INR300,aweek
2points
8) Openinterestforagivenfuturescontractforagivenmaturityonagivenday
Sumtotalofbothlongandshortfuturespositionsforthatcontractforthat
maturityyettobesquaredup.
Sumtotalofeitherlongorshortfuturespositionsforthatcontractforthatmaturity
yettobesquaredup.
Sumtotaloftotalvolumeoffuturestradedinagivenday.
Sumtotaloftotalvalueoffuturestradedinagivenday.
2points
9) OnAugust10,2016,acardamomtradertooklongfuturespositionsforSeptember
2016contract(1contractfor10KGminimumlotsize)atRs.650perKG.OnAugust
10,2016andAugust11,2016,thesamefuturescontractclosedatRs.665andRs.
685respectively.Themarktomarginpayment/receiptfor10and11August,2016
wouldbe
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ReceiptofRs.1500andReceiptofRs.3500respectively
PaymentofRs.1500andPaymentofRs.2000respectively
PaymentofRs.1500andPaymentofRs.3500respectively
ReceiptofRs.1500andReceiptofRs.2000respectively
2points
10)Standarddeviationof7daysreturn(dailyreturnseriesofspotprice)is1.02%.The
annualizedvolatilityis(basedon305daysoftradingover52weeksor365daysina
year)is
1.02%*52
1.02%*sqrt(52)
1.02%*sqrt(305)
1.02%*sqrt(365)
2points
11)Maximumallowableopenpositionforaclientwillalwaysbe__________the
maximumallowableopenpositionforatradingmember.
Higherthan
Lesserthan
Equalto
Norelationship
2points
12)Onthecontractexpirydate,thereare575contractsyettobesquaredup.Buyers
wouldliketotakedeliveryofunderlyingfor200contracts,whilesellerswouldliketo
givedeliveryofunderlyingfor125contracts.Howmuchofunderlyingwouldbe
deliveredifdeliverylogiciscompulsorydelivery,cashsettled,buyerschoice
andbothchoice?
575contracts,575contracts,375contracts,125contractsrespectively
575contracts,0(zero)contracts,375contracts,200contractsrespectively
575contracts,0contracts,375contracts,125contractsrespectively
575contracts,0contracts,200contracts,125contractsrespectively.
2points
13)IdentifytheINCORRECTstatement:Openinterestcalculationconsiders
Iftwonewpartiestakefuturespositionopeninterestincreases.
Ifanewpartytradeswithanexistingparty(whoissquaringupitsopenposition)
openinterestremainsconstant.
Inanewpartytradeswithanothernewpartyopeninterestremainsunchanged.
Ifbothpartieswithopenpositionstradewitheachothertosquareupopen
interestreduces.
2points
14)ChoosetheCORRECTone.InaShortSqueezesituation:
Shortfuturesholderareatdisadvantageousposition
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Longfuturesholdersareatdisadvantageousposition.
Spotpricenormallygoesdown.
Longfuturespositionholdersnormallyselltheunderlyingassetbeforetakingthe
longfuturesposition.
2points
15)ChoosetheCORRECTone:Incaseofanegotiablewarehousereceipt:
Ithastobeissuedindematerializedfrom.
Ownershipoftheunderlyinggoodscanbetransferredwithoutphysically
transferringgoods.
Canonlybeissuedforthosecommoditieswhicharetradedincommodity
exchanges.
AreissuedbyWarehousingDevelopment&RegulatoryAuthority(WDRA)
2points
Youareallowedtosubmitthisassignmentonlyonce.

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