SHORT ANSWER QUESTIONS:

1. DEFINE DERIVATIVES
2. DISTINGUISH BETWEEN FORWARD AND FUTURES MARKETS
3. STATE ANY TWO MAJOR PROVISIONS OF FORWARDS CONTRACT REGULATIONS ACT 1952
4. LIST ANY FOUR POINTS RELATED TO REGULATION OF DERIVATIVES IN INDIA
5. DEFINE INDEX FUTURES
6. WHAT IS THE DIFFERENCE BETWEEN LONG AND SHORT FORWARD POSITION
7. EXPLAIN OPTION PREMIUM
8. WHAT IS PLAIN VANILLA INTEREST RATE SWAP
9. WHAT IS HEDGE ACCOUNTING
10. DEFINE MIBOR AND LIBOR
11. WHAT IS THE CONCEPT OF CASH SETTLEMENT
12. WHAT IS AN ARBITRAGE POSITION
13. WHAT IS COVERED INTEREST ARBITRAGE
14. WHAT IS MARK TO MARKET
15. DIFFERENCE BETWEEN DIRECT AND INDIRECT QUOTE IN FOREX QUOTES
16. WHAT IS EFFECT OF UNEXPECTED CASH DIVIDEND ON A CALL OPTION PRICE
17. HOW IS THE PRICE OF SWAP QUOTED
18. WHAT DO YOU UNDERSTAND BY VEGA RISK
19. WHAT IS THE DIFFERENCE BETWEEN TRANSACTION EXPOSURE AND TRANSLATION
EXPOSURE.
20. what are the advantages of rolling settlement
21. distinguish between stock and index futures
22. what is performance bond margin
23. what is accreting swap
24. what is EEFC account
25. define credit derivatives
26. explain SHORT STOCK LONG CALL STRATEGY
27. EXPLAIN LONG STOCK LONG CALL STRATEGY
28. EXPLAIN LONG STOCK SHORT CALL STRATEGY
29. EXPLAIN SHORT STOCK SHORT PUT STRATEGY
30. what is badla system in Indian stock market and what is it replaced with in modern markets
31. what is hedging and what is its purpose
32. discuss differences between options and futures
33. what are call and put options and their pay off systems
34. explain the features of SWAPTIONS
35. how is tax on derivatives done in India
36. what is interest rate options
37. what is interest rate caps
38. how is accounting treatment of derivative transactions made
39. what are credit derivative instruments.
40. differentiate future vs option
41. what is rolling over of forward contract
42. differentiate badla from a forward trade
43. what is short hedging
44. what is in the money put and call option
45. explain long position in put option with examples
46. define financial asset as per IAS 32
47. what are derivative exposure and open positions
48. what is the rationale for use of short term interest rate futures
49. what is currency swap
50. distinguish SWAP and OPTION
51. WHAT ARE CREDIT DERIVATIVES
52. WHAT ARE WEATHER DERIVATIVES
53. SHORT TERM INTEREST RATE ARBITRAGE
54. FOREIGN CURRENCY FUTURES
55. EQUITY FORWARDS
56. EXOTIC OPTIONS
57. VEGO
58. RHO
59. RISK AVERSION
60. WHAT IS PRICE TIME PRIORITY
61. SYNTHETIC FUTURES
62. RAINBOW OPTION
63. CRITERIA FOR STATEMENT OF RECOMMENDED PRACTICES SORP
64. BULL CALL SPREAD
65. BULL PUT SPREAD
66. IRON BUTTERFLY
67. REGULAR BUTTERFLY
68. expiry date
69. what are carry type commodities
70. derivative exposure
71. explain the need for financial derivatives in the capital market
LONG ANSWER QUESTIONS

1. differentiate the pricing of financial futures and commodity futures. elaborate the mechanisms
involved
2. explain the various functions of derivatives market and types of players
3. explain the measures specified by SEBI to enhance protection of rights of investors in derivatives
market
4. give any five recommendations of L.C.GUPTA committee
5. hedging is to provide insurance against adverse fluctuations in the price movements. do you agree?
discuss the statement with the help of suitable examples
6. a corporate treasurer intends to borrow money in the middle of money for a three months period. the
treasurer may feat that interest rats might have risen by the data of borrowing. since a rise in interest
rates would add to the cost of borrowing , a futures position is taken so that there would be offsetting
profit in the event of rise in interest rates. three months interest rate futures are quoted on index
basis. index is 100 minus the futures interest rate. so futures interest rate of 6.5% pa would entail a
quote of 100-6.5% = 93.5%. the amount of borrowing is Rs.500000. show the position of treasurer
from futures contract. suppose the interest rate stands at 6.5% and on may interest rate rises to 8%.
7. explain the intrinsic value of option and time value of option.
8. options are the safest instrument for the investors for investment purpose. examine critically this
statement.
9. write in detailed note on classification of financial instruments for accounting purpose.
10. explain the interest rate caps. what are various types of caps? also discuss the various terms used
in interest rate caps and floors.
11. Explain how the futures markets can be used for speculation
12. bring out the advantages of forward rate agreements and what principle governs their pricing
13. discuss the role of SEBI in Indian capital markets
14. explain how the stock index futures are used for adjusting the beta value of portfolio : upward and
downward
15. what do you understand by beta of a security. explain the method of its calculation
16. explain the black and scholes model with suitable examples
17. explain the difference between a regular credit default swap and a binary credit default swap
18. explain why delta hedging is easier for Asian options than for regular options
19. what are the advantages of futures contract over a forward contract with suitable examples
20. how are derivatives categorized. discuss various functions and advantages of derivatives market
21. explain the growth and development of derivatives market in global and domestic level
22. gives the regulations governing forward and futures trading in India
23. explain the various hedging strategies
24. the current stock price is 100. the stock can increase or decrease by 10% per period. the risk free
rate is 5% per period. using the BOPM show at each node of binomial tree, the stock price and the
value of a European put which expires in two periods, and has a strike price of K =100. also,
calculate the hedge ratio at each node and show that the hedge portfolio has the same value at the
two nodes at t=1
25. explain option pricing models with examples. what are the variables needed in this model to
calculate the option price
26. discuss the nature of currency swaps and explain the different types of currency swaps
27. discuss the concept of derivative for accounting purposes. how derivatives is treated in accounting
record? explain with examples
28. what is the need for hedge accounting. discuss various issues that are relevant in india as far as
accounting for derivatives is concerned.
29. what are features and uses of futures contracts in india
30. a note on growth of futures market linking it to functions
31. explain the prudential conditions and precautions recommended by SEBI IN 1995
32. discuss the salient features of JR VARMA committee in 1997
33. discuss the eligibility conditions for entering derivatives trading
34. what are the exposure limits prescribed by SEBI
35. explain the issues in pricing currency forward contracts.
36. what is covered interest rate parity
37. how is hedging monitored
38. on march 20, a company X negotiated a contract to sell 2 million barrels of oil. it is agreed that the
price that will apply to the contract is the price as on august 20th. company is in a position whereby it
will gain 1000 for each 1% decrease in price of oil. suppose the spot price on march 20th is 300 pr
barrel and in august oil futures price on commodity exchanges is 290 per barrel. explain how the
strategy works if contract o commodity market is for delivery of 200 barrels.
39. discuss the determinants of options pricing
40. explain the black scholes option pricing model
41. how does SEBI ensure protection of small investors in the market.
42. explain forward forex market. what are its important features. give examples
43. discuss the concept of DURATION . with respect to bonds and also discuss the importance of
DURATION with respect to interest rate risk management
44. distinguish between spread, straddle and strangle option strategies and compare them with
examples
45. list down and explain various credit derivative instruments
46. what re transaction costs in forward markets. how does the over the counter forward market operate
47. explain the reasons why the firms hedge their positions. what are the hedging strategies used
48. DISCUSS how risks of options can be managed. how is volatility estimated
49. discuss the issues in risk management accounting. what are the G30 recommendations on
accounting policies and disclosures pertaining to derivatives
50. in futures market, cotton contract has a standard contract size of 5000 bushels of cotton. what
advantages does this have over the well known forward market practice of negotiation case by case
basis. what are disadvantages does standardized contract size have
51. under what circumstances are SHORT HEDGE, and a LONG HEDGE appropriate. use examples
52. stock index futures are a powerful tool for risk management used by mutual funds and pensions fund
and investment companies. explain the statement
53. an investor has a short position in put option. option price is 7. strike is 70 and stock current price is
65. draw a position of the investor writing a European put option on one share.
54. give a pay off profile of a cap purchase with help of table or graph.
55. WHAT is hedging and hedge ratio.what are hedging strategies used by individuals and corporate
investors. discuss with examples
56. discuss various option trading strategies
57. BRING out the differences between speculation and hedging
58. mechanics of financial futures market in india
59. assume you hold a TBILL that matures in 91 days when the Tbill futures expires. explain how you
could transact to effectively lengthen the maturity of the bill.
60. discuss the procedure for calculating the value of call option as per black and scholes model
61. discuss the difference between the credit risk and market risk. is it possible to hedge credit risk
explain
62. HEDGE transactions are easy to identify and hedge accounting is straight forward and simple to
carry out.unfortunately real life is far more complicated. discuss.
63. how is pricing in commodities market different from pricing of financial futures. . define mechanisms
involved
64. show graphically the call and put option pricing : at expiration date and before expiration date
indicating clearly the intrinsic and time value components of the option values
65. an investor bets on a substantial change in the price of a stock but is not sure in which direction the
change would take place. what different strategies involving stock options could be adopted.
compare the strategies
66. a note on advanced financial derivatives and exotic financial derivatives used by hedge funds.
67. what is currency swap and how does it reduce exposure to risk
68. differentiate selling of a call option and buying a put option with illustration
69. why is it beneficial to exercise a European call option lately. explain. with illustration
70. what is risk? how can risk of a security be calculated..
71. dr CK RAGHU a debt mutual fund manager in invested 200 million in long tern debt securities. he
wants to convert the holding into synthetic floating rate portfolio. the portfolio pays a 9% fixed return.
assume that a swap dealer offers 9% fixed for MIBOR, what should raghu do and what will be the
net payment of his choice.
72. spot price of one year non dividend paying stock is 240.interest rate is 15%. establish forward price
using arbitrage argument. what transactions will be undertaken if the forward price is 248..

 Explain the term ‘financial derivative’. What are its important features?
 Explain the different types of financial derivatives along with their features in brief.
 Bring out the historical development of financial derivatives.
 What are warrants and convertible securities? Also explain the critiques of
derivatives with suitable examples.
 Compare and contrast between forward, futures, options, and swaps.
 Write short notes on:
a. Forward contracting
b. Swaps and their features
c. Options and their types
 Write a detailed note on uses of financial derivatives.
 Define the forward contract. Also, discuss the features of the forward contract.
 Compare and contrast between forwarding contracts and futures contracts with
suitable examples.
 Write a detailed note on classification of forwarding contracts with examples.
 Define forward contract and discuss the trading mechanism of forwarding market
 What do you understand by parallel loans? Explain with an example.
 Describe features of an interest rate swap.
 Explain the value of interest rate swap.
 How would you convert a floating rate liability into a fixed rate liability using swap?
Draw a schematic diagram to explain your answer.
 If an enterprise has invested funds in securities providing floating rate of income,
 what risk does it face? How would you hedge such risk using an interest rate swap?
 What are the problems in arranging a swap and how are they overcome by swap
intermediary/bank?
 Explain hedging of fixed rate and floating rate loans using swap.
 What is a currency swap and how is it different operationally from an interest rate
swap?
 Currency swaps can be used to convert assets/liabilities from one currency to
another. Explain with a suitable example.
 How are currency swaps and interest rate swaps used for reducing cost?