Derivatives and commodities
Answer all questions. Each question carries 15 marks. Attempt any 2 sub questions from Q 1-4. All questions in Q5 have to be answered.
Q1 a. How are derivatives classified
Q1 b. Explain the advantages and dis advantages of derivatives
Q 1 c Who are major participants in derivatives markets
Q2 a. Explain the clearing process of futures
Q2 b. A share of TCS is currently traded at Rs 1461 and is available at Rs 1515 3 months forward. Dhrishti is of the opinion that the share is over valued and the fair price should be Rs 1315 after 3 months. Can she take an advantage of this now. What would be her profit or loss if the price at the time of settlement is Rs 1600, margin is Rs 100 per share and lot size is 300 shares.
Q 2 c What are index futures and how are they different from stock futures
Q3 a Explain the various ways an option can be valued
Q3 b. Stock of ICICI bank is available for Rs 170. The options on stock for exercise price 170, call premium Rs 15 and put premium Rs 3. Construct the pay off chart at spot price of 140, 150, 152, 160, 170, 180, 188 and 200 and prepare a pay off chart.
Q 3 c What are the various options strategies available for a bullish and bearish investor.
Q4 a. What is VaR and what are the various ways of computing the same
Q4 b. How does NSCCL help in risk management in derivatives.
Q 4 c What is the types of orders.
Q5. A. Stock of BHEL is expected to pay a dividend of Rs 1.5 per share in 2 months that would be reinvested at 10% per annum. The stock is currently quoted at 115 on BSE and the interest rate is 10%. Compute the theoretical price of a 3 month BHEL future.
B. Current price of LNT is Rs 85 while a 3 month future is trading at 91 Rs. If one can borrow at 10% and assume no dividend is declared, is there any arbitrage opportunity. Also identify the type of arbitrage.
C. A bullish investor longs call on a stock with exercise price of Rs 50 at a premium of Rs 3. Compute the payoff of a long call strategy for likely prices range of 46 to 55. Also draw the payoff chart.
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