SVKM’s NMIMS MUKESH PATEL SCHOOL OF TECHNOLOGY MANAGEMENT & ENGINEERING Programme: MBA TECH (ALL STREAMS) Year: V Semester: X Academic Year: 2017-2018 ‘Subject: Financial Risk Management Marks: 60 Date: 07 May 2018 Time: 10.00 a.m. to 12 noon Durations: 2 (hrs) No. of Pages :_ OZ —~ Instructions: Candidates should read carefully the instruetions printed on the question Paper and on the cover of the Answer Book, which is provided for their use. 1) Question No, tis compulsory. 2) Out of remaining questions, attempt any 4 questions, 3) Inalll § questions to be attempted, 4) All questions carry equal marks, 5) Answer to each new question to be started on a fresh page. 6) Figures in brackets on the right hand side indicate full marks, 7) Assume suitable data if necessary. {22 Suppose that you enter into short atures contract to sell August gold for Rs 520 per gram on the XYZ. Exchange, se ie of the contrat is LOK, The initial margin is Rs 500000 and the maintenance maryin ls ee 300000, Wer Change inthe future price will lead to margin call? What happens if you do not meet the margin? Rane Nity spot stands at Rs1260 and the cost of financing is 12% per year. The annual dividend yield on the Nity orks out to be 2% What is the ftir value oF one month Nifly fatures contrac? Nifty is quoting at 1300, what wal Ce ‘your strategy to make arbitrage profit? (6x2=12 marks) 2) Consider the following options on a single stock, (12 Marks) Particulars Calls A Calis B Put fa Months of expiration 3 9 3 Continuous yearly risk free rate | (Ro (Freasury Bills) 10.00% 10% 10.00% Discrete yearly Re 10.52% 10.52% 10.52% Standard deviation of stock returns 40% 40% 40%. =” Exercise price Rs5S RSS Rs55 ‘Option price Rs 2.56 E Rs6.20 Strike price RS50 Rs50 R50 _— Cash dividend Reo Reo Red a) a) Why should call B sell for more than call A? b) Is the put call parity model working for options A & C?©) How would you trade call A, the stock, and risk free security in order to replicate the expiration date ‘outcomes of Put C? 4) Calculate the Black-Scholes values of call A& B. (3a) Explain the difference between a plain vanilla interest rate swap and a plain vanilla currency swap. (6 Marks) b) Find out the payoffs of the following positions on European options on a stock whose price at maturity is Rs 100 (6 marks) i. Long call with exercise price of Rs 90 ii, Short call with exercise price of Rs 80 iii, Long put with exercise price of Rs 110 iv. Short put with exercise price of Rs 110 v. Long call with exercise price of Rs 100 Q4) What are the different types of hedging models and pricing models that can be applied to stock index futures? (12 marks) (Q5a) Discuss the risk management systems for the F&O segment (6 marks) by What is put call parity? (6 marks) Q6) Company ABC &XYZ have been offered the following rates per annum on a Rs50.0 lakh five year foan (Particulars Fixed rate Floating rate Company ABC 9.0% Mibor+0.3% Company XYZ a 10.8% Mibor+0.8%. Company ABC requires @ floating rate loan, Company XYZ requires a fixed rate loan, (ET marks) 4) How can the two companies enter into a swap arrangement in which each benefits equally? bb) What risk could this arrangement generate? Q7a) Compare future and forward markets (6x2=12marks) b) Write short note on Straddle oh