King Fahd University of Petroleum and Minerals

KFUPM Business School

Department of Accounting & Finance
FIN 460 (Derivatives) Term 221

Assignment 1
Due on Wednesday 14 September

Question 1
 

Go to Tadawol website and pick a company that has exposures to at least

one kind of market risk. By market risk I mean the risk of the change in the
price of a market that the company is engaging with such as interest rate,
exchange rate, commodity prices, ... etc.

Go to the company site within Tadawol and chose "STATEMENTS" tab.

Download the last annual financial statement and use it to answer the
following questions:

1. What are the kinds of market risks the company is exposed to?
2. What is the size of exposure in each risk? That is, how a change in the
market price of the exposure would affect the firm?
3. How is the company dealing with these market risks? does it engage in
derivatives? if yes, what are they? if no, find why?

Question 2
 

Go to Tadawol web page and find the page of MSCI Tadawul 30 Index and
the futures contract on the MSCI Tadawul 30 Index. Answer the following

1. Plot the SETTLEMENT PRICE of all futures contracts on MT30 (y-axis)

against each contract maturity (x-axis). Comment on where the market
expects the index to go in the future.
2. If you have a portfolio that tracks the movement of Tadawol Index and
you fear that the market may go down in a month from now, how can
 you use the MSCI T 30 futures contract to hedge your risk?
3. Draw the pay off diagram of your hedging position on the futures
contract. On the same graph, draw the payoff diagram of your
portfolio? show how hedging is getting you rid of the risk.

Instructions
Put your answer in an Excel file
Each question should be in one sheet