SVKM’s NMIMS MUKESH PATEL SCHOOL OF TECHNOLOGY MANAGEMENT & ENGINEERING Programme: MBA. Tech (All Streams) Yet v Academic Year: 2015-2016 Subject : Financial Risk Management Date : 17/05/2016 Instruction: Candidates should read carefully the instructions printed on the question paper and on the cover of the Answer Book, which is provided for their use NB: > 1) Question No. 1 is compulsory. 2) Out of remaining questions, attempt any 4 questions. - 3) In all 5 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 1. Please select whether the following statement is true or false, att 1. Difference of spot price and futures price would shrink as futures reaches maturity. Il. Futures price would always be higher than spot price because net cost of carry can never be negative. III. Higher the volatility of the price of underlying asset higher would be the initial margin in a futures contract. IV. Initial margin is not required in the forward contract because forward price in not allowed to change. V. Hedging with futures is not useful because price risk is replaced by basis risk. VI. The strategy of reverse cash and carry arbitrage is not possible for commodities, VII. _ Commodity futures can never be settled by delivery because of too much variety available in the commodities. VIII. Index futures can be settled by delivery of stocks worth the value of futures, IX. Index futures enable speculation on the stock market. X. Index futures are an ideal tool for hedging a well diversified portfolio. XI. Investing in index stocks provides market return and keeps research cost low. XII Index futures can eliminate systematic and unsystematic risk. Ya2. a) What are the determinant of Options pricing? Explain in brief. © b) What are the difference between exchange traded and OTC derivatives? © 3. a) What are the benefits of commodities futures at national level? © 'b) What do you understand put call parity? Explain. © 4, Suppose a 6-m forward contract on shares of ITC Limited is available, The current market price of ITC is Rs180, If the free interest is s 6% per annum what would be the value of the forward contract if a) The interest rate were continuously compounded, and b) ITC declared dividend of Rs 2.00 payable after 2 months. 5. Upon his retirement in 3 months time Gyan Prakash would receive Rs 24 lacs as superannuation benefits and50% of which he intends to invest in shares of State Bank of India (SBD. The current market price of SBI is Rs 1200with beta of 1.05. The market is currently rising and is expected to remain upbeat. The current level of market is4,200 while 3-m futures, contract on NIFTY sells for 4,260 with lot size of 50. Gyan Prakash is worried that he wouldbe able to buy much lesser number of shares when he actually would have the funds, than what he can hope to buynow. What strategy you can suggest to Gyan Prakash. Examine your recommended strategy if the market rises by 10% in three months time, 6. Atnational_ stock exchange following were the prices of 1 month catl and put options of Index when spot index was at 4500. (12) [ Exercise price _ Call option Put option [4450 165 75 | 4300 125 95 | 4550 100 125 (a) How would you construct short strangle at index value of 4500? (b) Find out payoff, breakeven point and maximum loss. What would be the profit/ loss if after 1 month the Index Value were (a) 4100 (b) 5000 Y- alg808 Financial Management APPENDIX A-7 (IST PART) Ones ee lg ST SESE Siahard Normal Ditton ‘Area Under the Normal Distribution Curve (for positive values) a 00 Ca an) 04 ieee ume ee 208 oo osm oso «05080 «stay Ostet SDSS OSI a 0568 «0438 -=OSTB««OSSIT «8887 OSHS OSRRB OTS OSTA STE 02 oss © ose «Sasa OMB Oster © RTRSY 03 sto cst =n eS ORME BHOS BMS SHED OBST oa (ess, —«S5G1=—saneasSmmt «TOD sTIS |= USTTZ ORR ORME os ages ones) ames) Teig «amass muen arias mist «arte aaa 06 ms or = omaadS OTST raz TKS OTSNT OTS or Ce a Ld 8 ee ee a 09 ee | 10 Deets O38. —OBKB=OBMES «BRB OHSS OBESE RSTT. OBER OBER uM CD 12 Ce ee ee ant) ooze gma = sngoee«=Siommez«S=omkegatts «aaah aster = ate SHT7 1“ ost oar gazes sest «ss mzT®stez HOBO 7 ry eS a 16 CC ee er a Cn ee 18 cet «09SEC SEE «SET S67B NERS NHS OD OTHE 19 nora ogi) gras. «sraz« gr sre STH) STEI = OSTET 20 Ce ae 2 sat —«c.gea5»=«=«0s)«geae «0088S ORS ORSH ET 22 gest «gas »=«skeB © «OseTY «= 8e7S © ssrB Nea kee RSTO ea 23 a a 09138816 28 oses ogee) oma «amar «ames amst «mae aad 25 en ee ed 26 Cr ar sees cess «0067 =< RRB «099 ORG] gaTH sere OsaTS ar cy rr en 29 ove ages =—=«geae«=«amms «omg «ag 008S «Ua O8 | 30 cee ogg —=«—«oaas ont =——wgees seen smegma,El Appendix 809 APPENDIX-7 (2ND PART) ‘Standard Nova Ditton ‘Ares underthecurve at ‘Area Under the Norma Distribution Curve (for negative values} e a 00 o0t om 208 am Os 008 oor 008 208 oo smo 049s aaaad agate OaTB! 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