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CommodityDerivativesandRiskManagementAssessment

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Assignment1
Dueon20160801,23:00IST
1) Aspotexchangeprovideseauctionfacilitytocommoditybuyersandsellers.Inthee
auction,abuyerwillchoose__________tobuyfromwhileasellerwillchoose
_________toselltheunderlyingcommodity.

Week1

LowestBidder,HighestBidder

Week2

HighestBidder,LowestBidder

Week3

Forum

MedianPriceBidder,AveragePriceBidder
AveragePriceBidder,MedianPriceBidder
2points
2) AtraderofSoybean(buysSoybeanfromfarmersandsellstheseatamargin)is
holdinginventoryoflastyearcrop.AfarmerisgoingtogethisSoybeanharvestwithin
next1month.Thetraderis__________assetandwouldmitigatethepriceriskby
enteringinto_________forwardpositionwhilethefarmeris______________asset
wouldmitigatethepriceriskbyenteringinto_________forwardposition.
Short,Long,Long,Short
Long,Short,Long,Short
Long,Long,Long,Long
Noneofthese.
2points
3) Differentfunctionsprovidedbyaclearinghouse:(ChoosetheINCORRECTone)
ClearingHousebecomescounterpartytoeachbuyerandeachsellerdoingaway
withthecreditrisk.
ThroughtheClearingHouse,Exchangeguaranteesthesettlementtoeachand
everycounterpartyevenintheeventanyoneofthecounterpartydefaults.
ClearingHouseisresponsibleforcollectingmarginfromtraders.
ClearingHousematchesbuyandsellordersgivenbytraders.
2points
4) ChoosetheCORRECTsequence/timelineforDeliveryDetails"inafuturescontract
specification:
Deliverypayinofcommodities,Deliverypayoutofcommodities,Payinoffunds,
Payoutoffunds
Deliverypayinofcommodities,Payinoffunds,Deliverypayoutofcommodities,

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CommodityDerivativesandRiskManagementAssessment

payoutoffunds
Payinoffunds,Payoutoffunds,Deliverypayinofcommodities,Deliverypayout
ofcommodities
Deliverypayoutofcommodities,Payinoffunds,Payoutoffunds,Deliverypay
inofCommodities
2points
5) NormallyDueDateRate(DDR)/FinalSettlementPrice(FSP)foracommodityis:
Averageoflastfewdaysfuturesclosingpriceforthatcommodity.
Averageoflastfewdaysspotandfuturespriceforthatcommoditycollectedfrom
differentmarketsalloverIndia.
Averageoflastfewdaysspotpriceforthatcommoditycollectedfromaspecific
market.
TheexchangeusesitsowninternalmodeltoarriveatDDR/FSP
2points
6) IdentifytheINCORRECTstatement
Futurescontractsarestandardizedincommodityexchanges
Allopenpositionsontheexpirymustbesettledincash
ClearingHouseassumescounterpartyriskforeachandeverytradeundertakenin
anexchangeplatform
Commodityderivativecontractsderivetheirvaluefromspotcontracts.
2points
7) CurrentpriceofanassetisINR1900.ValueatRisk(VaR)ofthatassetisINR300
overaweekwith98%confidence.Itmeansthatthereis_____%probabilitythatthe
assetwouldlose_______over_____.
2%,INR300,aweek
98%,INR1900,aweek
2%,INR1900,aweek
98%,INR300,aweek
2points
8) Openinterestforagivenfuturescontractforagivenmaturityonagivenday
Sumtotalofbothlongandshortfuturespositionsforthatcontractforthat
maturityyettobesquaredup.
Sumtotalofeitherlongorshortfuturespositionsforthatcontractforthatmaturity
yettobesquaredup.
Sumtotaloftotalvolumeoffuturestradedinagivenday.
Sumtotaloftotalvalueoffuturestradedinagivenday.
2points
9) OnAugust10,2016,acardamomtradertooklongfuturespositionsforSeptember
2016contract(1contractfor10KGminimumlotsize)atRs.650perKG.OnAugust
10,2016andAugust11,2016,thesamefuturescontractclosedatRs.665andRs.
685respectively.Themarktomarginpayment/receiptfor10and11August,2016
wouldbe
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CommodityDerivativesandRiskManagementAssessment

ReceiptofRs.1500andReceiptofRs.3500respectively
PaymentofRs.1500andPaymentofRs.2000respectively
PaymentofRs.1500andPaymentofRs.3500respectively
ReceiptofRs.1500andReceiptofRs.2000respectively
2points
10)Standarddeviationof7daysreturn(dailyreturnseriesofspotprice)is1.02%.The
annualizedvolatilityis(basedon305daysoftradingover52weeksor365daysina
year)is
1.02%*52
1.02%*sqrt(52)
1.02%*sqrt(305)
1.02%*sqrt(365)
2points
11)Maximumallowableopenpositionforaclientwillalwaysbe__________the
maximumallowableopenpositionforatradingmember.
Higherthan
Lesserthan
Equalto
Norelationship
2points
12)Onthecontractexpirydate,thereare575contractsyettobesquaredup.Buyers
wouldliketotakedeliveryofunderlyingfor200contracts,whilesellerswouldliketo
givedeliveryofunderlyingfor125contracts.Howmuchofunderlyingwouldbe
deliveredifdeliverylogiciscompulsorydelivery,cashsettled,buyerschoice
andbothchoice?
575contracts,575contracts,375contracts,125contractsrespectively
575contracts,0(zero)contracts,375contracts,200contractsrespectively
575contracts,0contracts,375contracts,125contractsrespectively
575contracts,0contracts,200contracts,125contractsrespectively.
2points
13)IdentifytheINCORRECTstatement:Openinterestcalculationconsiders
Iftwonewpartiestakefuturespositionopeninterestincreases.
Ifanewpartytradeswithanexistingparty(whoissquaringupitsopenposition)
openinterestremainsconstant.
Inanewpartytradeswithanothernewpartyopeninterestremainsunchanged.
Ifbothpartieswithopenpositionstradewitheachothertosquareupopen
interestreduces.
2points
14)ChoosetheCORRECTone.InaShortSqueezesituation:
Shortfuturesholderareatdisadvantageousposition
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Longfuturesholdersareatdisadvantageousposition.
Spotpricenormallygoesdown.
Longfuturespositionholdersnormallyselltheunderlyingassetbeforetakingthe
longfuturesposition.
2points
15)ChoosetheCORRECTone:Incaseofanegotiablewarehousereceipt:
Ithastobeissuedindematerializedfrom.
Ownershipoftheunderlyinggoodscanbetransferredwithoutphysically
transferringgoods.
Canonlybeissuedforthosecommoditieswhicharetradedincommodity
exchanges.
AreissuedbyWarehousingDevelopment&RegulatoryAuthority(WDRA)
2points
Youareallowedtosubmitthisassignmentonlyonce.

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