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Title Name Amity Solved Assignment MFM 4th Sem for Financial Engineering
University AMITY
Service Type Assignment
Course Master-in-Finance-Management-(MFM)
Semester Semester-IV Course: Master-in-Finance-Management-(MFM)
Short Name or Subject Code Financial Engineering
Commerce line item Type Semester-IV Course: Master-in-Finance-Management-(MFM)
Product Assignment of Master-in-Finance-Management-(MFM) Semester-IV (AMITY)
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Solved Assignment


  Questions :-

                                                                                                         Financial Engineering

Assignment A

  1. “A swap bank has to entail certain risks which are inherent to the swap business and are interrelated” Explain the risks involves in swap business.
  2. Call options are said to be “At the money “, “In the money” and “Out of the money” depending on whether the exercise price is equal to or less than or greater than the current market price of the stock. In case of Put options, the opposite is true. Explain when a trader realizes profits in case of Call as well as Put options with the help of simple examples.
  3. .Write short notes on (a) LBO or (b) Corporate restructuring  
  4. “Futures rely on a great deal on expected spot prices. The theoretical’framework suggests that forward rates reflect the expected spot rates.” How futures differ from forwards? Explain.
  5. “Arbitrage profits” an investor told are risk less profits. You take simultaneous but opposite positions in two markets to reap gains from pricing disparities. Acting on this belief, his friend tried to find the arbitrage profit by trading simultaneously in futures and stock index.

 

 

 

Assignment B

Case Detail:

The following options are quoted at the market:

Option                  Expiration                           Strike Price              Premium

Call                      1 Month                                Rs.48.5/$                 Rs.0.30

Put                       1Month                                 Rs.48.5/$                  Rs.0.05

A trader is looking at the above options and planning to adopt long strip or long strap strategy to make profit from the rupee-dollar exchange rate volatility.

  

Question

1.Show the pay off profile and indicate break even points for strip and strap strategies in a price range of Rs 47- Rs 50 for a dollar.

2.Comment on the desirability of the above two option strategies.

3.Consider a call option on a stock with the following parameters

Stock price: Rs210

Strike Price: Rs 220

Time to expiration: 167 days

Risk free interest rate: 10 %

Variance of annual stock returns: 20%

Compute price of the call option

 

 

 

 

Assignment C

Question No.  1          Marks - 10

Standardized futures contracts exist for all of the following underlying assets except  

Options          

  1. GOLD
  2. common stock
  3. stock indices
  4. T bonds

 

 

Question No.  2          Marks - 10

Which of the following is false?      

Options          

  1. Futures contracts trade on a financial exchange.
  2. Futures contracts are more liquid than forward contracts.
  3. Futures contracts allow fewer delivery options than forward contracts.
  4. Futures contracts are marked to market

 

 

Question No.  3          Marks - 10

Which one of the following actions will offset a long position in a futures contract that expires in June?

Options          

  1. Sell any futures contract, regardless of its expiration date
  2. Buy any futures contract, regardless of its expiration date.
  3. Buy a futures contract that expires in June
  4. Hold the futures contract until it expires

 

 

 

Question No.  4          Marks - 10

Which of the following does the most to reduce default risk for futures contracts?     

Options          

  1. Flexible delivery arrangements.
  2. High liquidity
  3. Credit checks for both buyers and sellers
  4. Marking to market.

 

 

Question No.  5          Marks - 10

Which of the following is most similar to a stock broker?

Options          

  1. Pit trader.
  2. Futures commission merchant.
  3. Floor broker.
  4. local

 

 

Question No.  6          Marks - 10

Using futures contracts to transfer price risk is called:    

Options          

  1. speculating
  2. arbitrage
  3. hedging
  4. diversifying

 

 

Question No.  7          Marks - 10

Which of the following is best described as selling a synthetic asset and simultaneously buying the actual asset?

Options          

  1. speculating
  2. arbitrage
  3. hedging
  4. diversifying

 

 

 

Question No.  8          Marks - 10

Which of the following causes the futures price of an asset to increase, everything else held constant?           

Options          

  1. Higher expected spot price for the underlying asset.
  2. Lower expected spot price for the underlying asset.
  3. Lower risk-free rate of interest
  4. Higher income received while carrying the underlying asset

 

 

 

Question No.  9          Marks - 10

A put option has a strike price of $35. The price of the underlying stock is currently $42. The put is:           

Options          

  1. at the money.
  2. near the money.
  3. in the money.
  4. out of the money.

 

 

Question No.  10        Marks - 10

A call option with a strike price of $55 can be bought for $4. What will be your net profit if you sell the call and the stock price is $52 when the call expires?        

Options          

  1. 0
  2. -7
  3. 3
  4. 4

 

 

Question No.  11        Marks - 10

Suppose you sell a call and buy one share of stock. What is your cash payoff when the option expires? (Ignore the costs of the call and the share of stock).

Options          

  1. Receive St if St ≤ X and receive X if St > X.
  2. Receive St if St ≤ X and receive –(St –X) if St > X.
  3. Receive (St – X) if St ≤ X and receive X if St > X.
  4. Receive X if St ≤ X and receive St if St > X.

 

 

 

Question No.  12        Marks - 10

Which of the following has the right to sell an asset at a predetermined price? 

Options          

  1. A call buyer.
  2. A put writer.
  3. A put buyer.
  4. A call writer.

 

 

Question No.  13        Marks - 10

Which of the following is potentially obligated to sell an asset at a predetermined price?        

Options          

  1. A call buyer.
  2. A put writer.
  3. A put buyer.
  4. A call writer.

 

 

 

Question No.  14        Marks - 10

Which of the following is not a characteristic of option contracts that trade on the Chicago Board Options Exchange?    

Options          

  1. The contracts are standardized.
  2. Option holders must take physical delivery of the underlying asset.
  3. Option writers are required to put up collateral
  4. It is easy to transfer the contracts between investors.

 

 

Question No.  15        Marks - 10

Which of the following actions will not close a long position in a call option?    

Options          

  1. Allowing the call to expire.
  2. Exercising the call.
  3. Selling a call with the same strike price, expiration, and underlying asset.
  4. Buying a put with the same strike price, expiration, and underlying asset.

 

 

Question No.  16        Marks - 10

Which of the following strategies will be profitable if the price of the underlying asset is expected to decrease? (There may be more than one correct response.)        

Options          

  1. Buying a put.
  2. Selling a put.
  3. Selling a call.
  4. Buying a call.

 

 

Question No.  17        Marks - 10

Which of the following investment strategies has unlimited profit potential?    

Options          

  1. Protective put.
  2. Covered call.
  3. Bull spread.
  4. Writing a call.

 

 

Question No.  18        Marks - 10

Which of the following is a major difference between swaps and futures contracts?   

Options          

  1. Swaps are usually marked to market, whereas futures contracts are not.
  2. A futures contract involves only one future transaction, whereas a swap typically involves several future transactions.
  3. Swaps are derivative securities, but futures contracts are not.
  4. Swaps are typically short term, whereas futures contracts tend to extend over several years.

 

 

Question No.  19        Marks - 10

Which of the following contract terms is not set by the futures exchange?        

Options          

  1. the price
  2. the deliverable commodities
  3. the dates on which delivery can occur
  4. the size of the contract

 

 

Question No.  20        Marks - 10

Find the forward rate of foreign currency Y if the spot rate is $4.50, the domestic interest rate is 6 percent, the foreign interest rate is 7 percent, and the forward     

Options          

  1. 104
  2. 458
  3. 532
  4. 468

 

 

Question No.  21        Marks - 10

Margin in a futures transaction differs from margin in a stock transaction because    

Options          

  1. stock transactions are much smaller
  2. delivery occurs immediately in a stock transaction
  3. no money is borrowed in a futures transaction
  4. futures are much more volatile

 

 

Question No.  22        Marks - 10

Most futures contracts are closed by          

Options          

  1. exercise
  2. offset
  3. default
  4. delivery

 

 

Question No.  23        Marks - 10

Which of the following is not a forward contract?

Options          

  1. an automobile lease non-cancelable for three years
  2. a signed contract to buy a house in six months
  3. a long-term employment contract at a fixed salary
  4. a rain check

 

 

Question No.  24        Marks - 10

One of the advantages of forward markets is       

Options          

  1. the contracts are private and customized
  2. trading is conducted in the evening over computers
  3. performance is guaranteed by the G-30
  4. trading is less costly and governed by more rules
  5. none of the above

 

 

Question No.  25        Marks - 10

Which of the following best describes normal contango?

Options          

  1. the futures price is less than the spot price
  2. the cost of carry is negative
  3. the expected spot price is less than the futures price
  4. the spot price is less than the futures price

 

 

 

Question No.  26        Marks - 10

Suppose you sell a three-month forward contract at $35. One month later, new forward contracts are selling for $30. The risk-free rate is 10 percent. What is the value of your contract?

Options          

  1. 55
  2. 96
  3. 92
  4. 5

 

 

Question No.  27        Marks - 10

Futures prices differ from spot prices by which one of the following factors?  

Options          

  1. the systematic risk
  2. the risk premium
  3. the spread
  4. the cost of carry

 

 

Question No.  28        Marks - 10

Suppose there is a risk premium of $0.50. The spot price is $20 and the futures price is $22. What is the expected spot price at expiration?  

Options          

  1. 5
  2. 5
  3. 5
  4. 5
  5. none of the above

 

 

Question No.  29        Marks - 10

………..for performing investment or securities accounting services and computing the net asset value           

Options          

  1. custody fees
  2. fund administration fees
  3. fund accounting fees
  4. registration fees

 

 

Question No.  30        Marks - 10

………...for 24F-2 fees owed to the SEC for net sales of registered fund shares and state blue sky fees owed for selling shares to residents of states          

Options          

  1. custody fees
  2. fund administration fees
  3. fund accounting fees
  4. registration fees

 

 

 

Question No.  31        Marks - 10

GROWTH FUNDS INVEST IN    

Options          

  1. risky securities
  2. riskfree securities
  3. income securities
  4. bonds

 

 

Question No.  32        Marks - 10

The ………….-end load often declines as the amount invested increases, through breakpoints.         

Options          

  1. back
  2. front
  3. both of the above
  4. none of the above

 

 

Question No.  33        Marks - 10

The ………...-end load is paid by the shareholder; it is deducted from the amount invested.

Options          

  1. back
  2. front
  3. both of the above
  4. none of the above

 

 

Question No.  34        Marks - 10

Income funds are preferred by       

Options          

  1. retired investors
  2. businessmen
  3. shareholders
  4. risky investors

 

 

Question No.  35        Marks - 10

If the ……..-end load declines the longer the investor holds shares, it is called a contingent deferred sales charges          

Options          

  1. back
  2. front
  3. both of the above
  4. none of the above

 

 

Question No.  36        Marks - 10

GDR is          

Options          

  1. global deposits record
  2. global depository rceipts
  3. gross domestic record
  4. gross deposit receipts

 

 

Question No.  37        Marks - 10

GDR is used to         

Options          

  1. invest in assets
  2. Raise money from public
  3. Issue stocks
  4. sell products

 

 

Question No.  38        Marks - 10

Loan syndication helps        

Options          

  1. companies
  2. Govt
  3. SEBI
  4. stock exchange

 

 

Question No.  39        Marks - 10

Mutual funds are sold at     

Options          

  1. NAV
  2. market Price
  3. base price
  4. discount

 

 

Question No.  40        Marks - 10

Best rating among the following is  

Options          

  1. AAA
  2. AA
  3. A
  4. BB

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