Hall Ticket No Question Paper Code: CMB421
INSTITUTE OF AERONAUTICAL ENGINEERING
(Autonomous)
MBA IV Semester End Examinations (Regular) May/June, 2018
Regulation: IARE-R16
FINANCIAL DERIVATIVES
Time: 3 Hours Max Marks: 70
Answer ONE Question from each Unit
All Questions Carry Equal Marks
All parts of the question must be answered in one place only
UNIT I
1. Explain the growth and development of derivatives market in India.
Define derivatives. Write the uses of financial derivatives in detail.
2. Discuss the different players in the derivatives markets with their roles.
Explain the classification based on linearity and on the basis of financial and non financial derivatives.

UNIT II
3. Briefly explain about forward rate agreements in forward contract.
Calculate the price of 100 forward contract using the following information. Price of share Rs 75.
Time to expiration 9months. Dividend expected Rs 2.20per share. Time to dividend 4 months.
Continuously compounded risk free rate of interest is 12%.
4. Explain about currency rate futures in derivatives market.
From the following Table prepare the margin account of the trader who has taken the long
position: number of contracts- number of units per contract- 50; price per unit on day
Rs.700; initial margin- maintenance margin- 75%.
Table 1
Day 1 2 3 4 5 6 7 8 9
Closing Price(Rs) 693 682 663 648 623 610 633 638 621
UNIT III
5. Write short notes on American option and European option.
A butterfly spread is created when large price changes are not expected but instead small changes
are anticipated. Consider the data in Table 2 about call options on BHEL for which one contract
involves 1100 shares.
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Table 2
Strike price(Rs) Premium(Rs)
170 21.10
180 14.00
190 8.00
Help the investor to build a butterfly spread. Find the pay-off for him at various ranges of stock
prices. Illustrate by taking stock prices as Rs 168, Rs 176, Rs 185, Rs 189, and Rs 198.
6. What is a Bull Spread? Explain the payoffs arising out of Bull Spread (Using calls).
Using the data given below, calculate the theoretical values of
call
put options on futures
S and P CNX Nifty futures contract price 1625
Exercise price of the option 1632
Time to expiration of the option 60 days
Risk-free interest rate
Volatility, 28%
UNIT IV
7. Discuss about basis risk in commodity trading market.
Explain briefly about commodity futures contract with a suitable examples.
8. Explain commodity options contract with a suitable examples.
Explain how swaps commodity works in commodity derivative market.
UNIT V
9. Define swaps. Explain the features of swaps.
Discuss about currency swaps as a tool to hedge risk.
10. How do you value interest rate swaps.
Suppose that zero interest rates with continuous compounding are given in Table 3.
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Table 3
Maturity (years) Rate per annum)
1 8.0
2 7.5
3 7.2
4 7.0
5 6.9
Calculate forward interest rates for the second, third, fourth and fifth years.

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