Chapter 13

Basic Derivatives

PROBLEM 1: TRUE OR FALSE

1. FALSE

2. FALSE

3. TRUE

4. FALSE

5. TRUE

6. TRUE

7. TRUE

8. TRUE

9. TRUE

10. TRUE

PROBLEM 2: MULTIPLE CHOICE – THEORY 1. B

2. D

3. C

4. A

5. B

6. B

7. C

8. B

9. D

10. D

PROBLEM 3: EXERCISES

1. Solutions:

⮚ Dec. 1, 20x1 (Contract date)

Hedged item

– None Forward contract (Derivative)

Dec. 1, 20x1 No entry

⮚ Dec. 31, 20x1 (Reporting date)

The value of the derivative is computed as follows:

Purchase price under the fwd. contract (1,000 x 250) 250,000 Purchase price in the market (1,000 x 285)
285,000 Gain/ Derivative asset 35,000