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Seat No.: Enrolment
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA SEMESTER 4 EXAMINATION WINTER 2018
Subject Code:2840202 Date:07/12/2018
Subject Name: Risk Management
Time: 02:30pm To 05:30pm Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1(a) Multi choice Questions: 6
1. the right to purchase a given no. of shares at a
specified price on or before specified time.
A. Puttable Bonds B. Warrants
C. Callable Bonds D. ESOP
2. IMM began under CME in which year?
A. 1710 B. 1919
C. 1972 D 1973
3. Identify the moneyness of option from below situation:
Put option with strike price 100 Rs. Market Price- 70 Rs.
A. ITM- 30 Rs. B. ATM
C. OTM- 30 Rs. D. Can't be determined
4. Which is not the approach to Risk Management?
A. Selective Hedging B. Do Nothing
C. Cover Everything D. None of the above
5. The Full form of IMM is?
A. Indian Monetary Markets B. Interest rate
Monetary
Mechanisms
C. International Monetary
Markets
D. International
Monetary
Mechanisms
6. Which is not the assumption of Black Scholes Model?
A. American Exercise Style B. Presence of taxes
C. Both A and B D. Normally Distributed
data
Q.1 Explain the terms:
1. VAR
2. Non- Deliverable Forwards
3. Credit Derivatives
4. Margin
04
Q.1 Explain various types of orders in detail. 04
Q.2 Explain the role of SEBI in regulation of Derivative market 07
2
On September Ashok Leyland shares are selling at Rs.
40.35. Ashok Leyland futures have a contract size of 9550. The
September futures expiring on September 28 are priced at Rs.
41.25 and the October futures expiring on October 26 are
priced at Rs. 41.54. The initial margin requirement is5 of
the contract value. On September 28, the shares of Ashok
Leyland are selling at Rs. 41.83
1. If you buy one September contract, what is the value of
the contract?
2. How much money do you need to post as the margin?
3. What would be the amount of cash settlement for
September contract?
07
OR
Following data are available for call option on a hypothetical
stock, find Intrinsic Value and Time Value for both the
options:
Option 1 Option 2
Exercise Price 80 85
Spot Price 83.5 83.5
Premium 6.75 2.5
07
Q.3 Differentiate Interest Rate and Currency Swaps 07
Assume that stock is currently priced at Rs. 1200. There exist
a call option with an exercise price of Rs. 1240 and an expiry
of 90 days. At the end of 90 days the stock price can either
increase by or decrease by . If the risk free rate is
calculate the price of the Call by using the binomial options
pricing model.
07
OR
Q.3 Explain various stock indices of the world. 07
Apply Black scholes model to calculate call premium from the
below data:
Current Market price= Rs 50
Annual Volatility is 30%
Risk free ROI= 10%
Time months
Exercise price Rs. 40
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Q.4 Explain the classification of options in detail. 07
Rupee Yen Spot 0.4002
F12 0.388874
Rf for Japan is
Rf for India is
Investment of 1 Lakhs Yen P.a.
Where will you invest India or Japan?
07
OR
Q.4 Explain the Cost of Carry model with illustration of your
own.
07
3
Assuming that spot price of cardamom is Rs. 714 per kg. If
financing costs are 10% per annum with continuous
compounding what should be the price of 3 month futures
contract on cardamom? If warehousing and Insurance cost are
placed at per annum, what would be the fair value of the 3
month futures contract?
07
Q.5 Company A which has borrowed from the market on floating
rate basis at MIBOR 25 basis points has to pay to lenders at
a floating rate . Further company considers that interest rate
would rise in future in the view of rising interest rate it would
like to have a liability i.e. fixed in nature rather than being
variable, therefore it decided to enter into swap with a bank
paying fixed 8.5% and receiving MIBOR 30 basis point.
Show the swap arrangement and interpret it.
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OR
Q.5 A Merchant wants to buy 5 cashew contracts on march 5 at
5600Rs each. Initial Margin is 5.5% of contract value. Contract
size is 50 cartons. The variation margin is Rs. 50, 000.
Prepare Margin Account for merchant.
March Future Price

5 5600
6 5650
7 5675
8 5610
9 5570
12 5520
13 5400
14 5480
15 5570
16 5650
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