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    RM&D_QP

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    Risk management and derivatives question bank

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    RM&D_QP

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    tamizharasid
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    Risk management and derivatives question bank

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    Risk management and derivatives question bank

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    0 views3 pages

    RM&D_QP

    Uploaded by

    tamizharasid
    Risk management and derivatives question bank

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    RASHTREEYA SIKSHANA SAMITHI TRUST®

    RV INSTITUTE OF MANAGEMENT
    BENGALURU-5600041
    (Autonomous Institution Affiliated to BCU)
    MID TERM EXAMINATIONS- JULY-2023
    Batch: 2021-23 Semester:
    IV
    Sub Code and Name: 21MBA341 - RISK MANAGEMENT AND DERIVATIVES
    Max. Marks: 50 Duration: 1.30

    Course Outcomes (COs)


    CO1 Understand and appreciate the basics of derivative markets
    CO2 Examine trading and creating effective hedging strategies using futures contracts
    CO3 Examine trading and creating effective hedging strategies using options
    CO4 Evaluate Risks involved and create risk control systems
    Analyze how derivative exposures can lead to next world financial crisis as part of contemporary issues in
    CO5
    derivatives. (Contemporary issues)
    Cognitive Levels (CL)
    L1 Remember / Recall the concept or Knowledge
    L2 Understanding the Concept of Knowledge
    L3 Application of the Concept of Knowledge
    L4 Analyzing / Evaluating the concept of Knowledge
    L5 Synthesis or Creating new knowledge
    Instruction to Candidates:

    Sl. No Section – A C L Marks Cos


    Answer any THREE of the following questions. Each question carries Five marks. (5 x 3 =15)
    1 Compare and contrast between forward and futures contracts L2 5 CO1
    2 A share price is currently Rs 60. Assume that at the end of six months, it will L2 5 CO4
    be either 70 or Rs 52. The risk-free rate of interest with continuous
    compounding is 12% per annum. Calculate the value of a 6-month European
    call option on the stock with the exercise price of Rs 56.
    3 A share is currently traded at Rs.76. A three months future contract on this L4 5 CO2
    share is traded at Rs.78.50. The risk free rate of return continuously
    compounded is 8% per annum. No dividend is expected from this share in the
    next three months. Is there any arbitrage opportunity here? If so, explain the
    process of arbitrage and the profits to be made.
    4 The stock of XYZ ltd. is currently quoted in the market at Rs.250 on 1 st Jan L4 5 CO2
    2012. The continuously compounded risk free rate of interest is 14% p.a. The
    stock is likely to pay dividend on 31 st March 2012 and 30th June 2012 to the
    extent of Rs.30 on each time. What is the forward price of the stock if it
    expires on 31st July 2012?
    5 The spot price of the gold is Rs 4500 per gram. The storage cost is Rs 30 per L4 5 CO2
    gram per month payable at the beginning. If the risk free rate of return
    continuously compounded is 8% per annum, what is the price of the 3 month
    futures contract on gold.(Size of one futures contract = 100 grams).
    Section – B
    Answer any TWO of the following questions. Each question carries Ten marks. (10 x 2 =20)
    6 Compa Share Market capitalization(in L3 10 CO2
    nies price(Rs) crores of Rs)
    A 220 22
    B 60 40
    C 90 24
    Assume that a market capitalization weighted index contains only 3
    Page 1 of 3
    stocks of A,B and The current value of the index is 2056.

    Calculate the price of the future contract with expiration in 60 days on


    this index, if it is known that 25 days from today, company A would
    pay a dividend of Rs.8 per share. The risk free rate of interest is 15%
    p.a, continuously compounded. Assume the lot size to be 200 units.

    7 A fund manager has an equity portfolio of Rs.70 lakhs. The beta of the L4 10 CO2
    portfolio is 1.35. Since a fall is expected in the market, the fund
    manager is interested in reducing the beta to 0.90.
    i. What amount of the portfolio should be replaced by risk free
    assets in order to reduce the beta to 0.90
    ii. Alternatively, if the manager does not want to reshuffle the
    portfolio, how can he use index futures for reducing beta?
    Explain. The tree – month futures contract on the bench
    mark index is traded at 3500. The multiplier for index future
    is 100.
    iii. Assuming that the manager used index futures, what is his
    net gain/loss on maturity if the index on maturity stood at
    3325 and his portfolio value fell to Rs.65 lakhs.

    8 An investor took short position in 10 futures contracts of commodity at an L3 10 CO2


    exercise price of Rs.29.75 per kg. The size of one future contract is 100kg. The
    initial margin for this contract is 20% and the maintenance margin is 85% of
    the initial margin. The future price for the first ten days of the contract is given
    below. Prepare a margin account for the first ten days assuming that all the
    margin calls are honored immediately.
    Day 1 29.90
    Day 6 30.15
    Day2 30.75
    Day 7 31.25
    Day 3 31.10
    Day 8 31.50
    Day 4 29.85
    Day 9 32.25
    Day 5 28.65
    Day 10 31.60
    Section – C
    Case Study – Compulsory (1 x15=15)
    9 On March 1, 2015, an investor has portfolio consisting of six securities L4 15 CO2
    as shown below

    Security No. of shares Share Beta


    price
    ABN AMRO 4000 1029.75 0.6
    CIPLA 5200 208.40 1.32
    ICICI 6600 61.20 0.87
    INFOSYS 2400 3958.95 0.5
    TATA ENGG 5600 308.80 1.12
    ZEE FILM 4000 170 1.25
    The cost of capital for the investor is given to be 20% per annum. The
    investor fears a fall in the prices of the shares in the near future.
    Accordingly, he approaches you for advice. You are required to;

    i. Calculate the beta of his portfolio


    ii. The May future on BSE Sensex is quoted at 3555 and Sensex value is
    3500. Assuming the market lot to be 100, calculate the theoretical
    Page 2 of 3
    value of futures contract.
    iii. Calculate the number of contracts, the investor should short for
    hedging his portfolio against falling markets.
    iv. Determine the number of futures contracts the investor should trade if
    he desires to reduce the beta of his portfolio to 0.5.

    Page 3 of 3

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