[Dec-14]

[MPRBA-FM-502C]
MBA Degree Examination
V TRIMESTER
FINANCIAL DERIVATIVES
(Effective from the admitted batch 2013–14)
Time: 3 Hours Max.Marks: 60
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Instructions: Answer all units choosing one question from each unit.
All parts of the unit must be answered in one place only.
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SECTION-A
1. Answer any FIVE of the following:
Each answer should not exceed one page. (5x4=20)
a) Options contracts
b) Arbitraging v/s Spreading
c) Hedging strategies using futures
d) Stock Index futures
e) Cross Hedging
f) Suppose that X writes a put option contract on IBM with a strike
price of ` 10000 and expiration date in three months the current
price of IBM stock is ` 10500. What (X) has committed to
yourself? How much could you gain or loss?
g) Calculate the value of three-month at-the-money European call
option on stock index when the index is at 250, risk-free interest
rate is 10% per annum, volatility of index is 18% per annum and
dividend yield on index is 3% per annum.
h) Companies A and B have been offered the following rate per
annum on a $ 20l million five-year loan:
Fixed rate Floating rate
Company A 12% LIBOR + 0.1%
Company B 13.4% LIBOR + 0.6%
Company A require a floating rate loan, Company B requires a
fixed rate loan. Design a swap that wills not a bank acting as
intermediary 0.1% per annum and be equally attractive to both
companies.
 SECTION-B
Answer the following: (5x8=40)
UNIT-I
2. a) Explain the different types of financial derivatives along with their
features in brief
OR
b) Discuss the major regulations of financial derivatives market is
India
UNIT-II
3. a) Define forward contract and discuss the trading mechanism of
forward market
OR
b) Suppose that on January 1, price of Reliance share is ` 450 and two
parties enter into a forward contract for delivery of 1000shares of
Reliance on April 15 at a price of ` 460. Find out the profit/loss
profile of seller (short position) if the price of Reliance Share turns
out to be (i) ` 470 (ii) ` 400 on April 15
UNIT-III
4. a) Explain the important characteristics of futures prices
OR
b) A fund manager is managing a bond portfolio of worth ` 50 lakh.
Today is February 5. The October treasury bond futures price is
currently 100 and cheapest-to-deliver bond has a duration of a 6.2
years. What will be the number of contract needed to hedge the
position? Suppose average duration of portfolio is 8.4 years.
UNIT-IV
5. a) Discuss the various determinants of the currency option value with
examples
OR
b) Consider a European call option on stock when there are ex-
dividend dates in two months and four months. The dividend on
each dividend date is expected to be 0.50. Current price of share is
$ 40, the exercise price is $40, the stock volatility is 30% per
annum, the risk-free rate of interest is 9% per annum, and time to
maturity is six months. Calculate the option price using Black-
Scholes model.
 UNIT-V
6. a) What are various types of Currency Swaps? Explain their
structure also
OR
b) A Company enters into an IRS as a pay-fixed party on notional
principal of ` 350 lakhs for 5 years. The fixed interest rate is
7.5% and settlements are carried out at 6 months intervals. After
one year, the company wants to cancel the Swap. The counterparty
quotes 7.75%. How much will the marked to-market cash payment
be? Who will be the receiver and payer?

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