ITM325
Financial Engineering
Assignment No.I
Assignment Code: 2013ITM325B1 Last Date of Submission: 15th October 2013
Maximum Marks:100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
Ques. 1 What are the regulatory frameworks in risk management? Explain Basel Committee’s
recommendations.
Ques. 2 Explain the types of options
Ques. 3 Explain the meaning of future and forward. Bring out the differences.
Ques. 4 What is meant by Derivatives? Describe essential features of a forward and a futures
contract. In what way they are different?
Section-B
Silver Oak Ltd. an Indian company an Indian company is mainly engaged in international trade with US and UK. It is currently 1st January. It will have to make a payment of $ 7,29,794 in the coming six months time. The company is presently considering various alternatives in order to hedge its transactional exposure through its London Office. The following information is available:
Exchange Rates :
$/£ Spot Rate : 1.5617 - 1.5773
6-month $ forward rate : 1.5455 - 1.5609
Money Market Rates Borrow Deposit
(%) (%)
U.S. Dollar 6 4.5
Sterling 7 5.5
Foreign currency option prices (Cents per £ for contract size £12,500)
Exercise Price Call Option (June) Put Option (June)
$1.70/£ 3.7 9.6
Suggest which of the following hedging options is most suitable for Silver Oak Ltd.:
(i) Forward Exchange contract
(ii) Money Market
(iii) Currency option.
ITM325
Financial Engineering
Assignment No.II
Assignment Code: 2013ITM325B2 Last Date of Submission: 15th November 2012
Maximum Marks:100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
Ques. 1 Explain the meaning of Hedging and how can hedging be used as a tool for risk
management
Ques. 2 Define the following terms with appropriate example.
(A) Currency Swap
(B) Interest Rate Swap
Ques. 3 How can hedging be used as a tool for risk management? Explain with example.
Ques. 4 Define the following terms:
(a) premium
(b) Exercise price
(c) out-of-the-money option
Section-B
An AMC has decided to call a well – known country risk consultant to conduct a country risk analysis on a small country in which the MNC plan to develop a large subsidiary. The MNC prefers to fire the consultant since it plans to use its employees to other important corporate functions. The consultant uses a computer programme that has assigned weights of importance linked to the various factors. The consultant will evaluate the factors for this small country and insert a rating for each factor into the computer. While the assigned weights to the factors are not adjusted by the computer, the factor rating is adjusted for each country the consultant assesses.
Do you think the MNC should use this consultant? Why or why not.
Financial Engineering
Assignment No.I
Assignment Code: 2013ITM325B1 Last Date of Submission: 15th October 2013
Maximum Marks:100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
Ques. 1 What are the regulatory frameworks in risk management? Explain Basel Committee’s
recommendations.
Ques. 2 Explain the types of options
Ques. 3 Explain the meaning of future and forward. Bring out the differences.
Ques. 4 What is meant by Derivatives? Describe essential features of a forward and a futures
contract. In what way they are different?
Section-B
Silver Oak Ltd. an Indian company an Indian company is mainly engaged in international trade with US and UK. It is currently 1st January. It will have to make a payment of $ 7,29,794 in the coming six months time. The company is presently considering various alternatives in order to hedge its transactional exposure through its London Office. The following information is available:
Exchange Rates :
$/£ Spot Rate : 1.5617 - 1.5773
6-month $ forward rate : 1.5455 - 1.5609
Money Market Rates Borrow Deposit
(%) (%)
U.S. Dollar 6 4.5
Sterling 7 5.5
Foreign currency option prices (Cents per £ for contract size £12,500)
Exercise Price Call Option (June) Put Option (June)
$1.70/£ 3.7 9.6
Suggest which of the following hedging options is most suitable for Silver Oak Ltd.:
(i) Forward Exchange contract
(ii) Money Market
(iii) Currency option.
ITM325
Financial Engineering
Assignment No.II
Assignment Code: 2013ITM325B2 Last Date of Submission: 15th November 2012
Maximum Marks:100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
Ques. 1 Explain the meaning of Hedging and how can hedging be used as a tool for risk
management
Ques. 2 Define the following terms with appropriate example.
(A) Currency Swap
(B) Interest Rate Swap
Ques. 3 How can hedging be used as a tool for risk management? Explain with example.
Ques. 4 Define the following terms:
(a) premium
(b) Exercise price
(c) out-of-the-money option
Section-B
An AMC has decided to call a well – known country risk consultant to conduct a country risk analysis on a small country in which the MNC plan to develop a large subsidiary. The MNC prefers to fire the consultant since it plans to use its employees to other important corporate functions. The consultant uses a computer programme that has assigned weights of importance linked to the various factors. The consultant will evaluate the factors for this small country and insert a rating for each factor into the computer. While the assigned weights to the factors are not adjusted by the computer, the factor rating is adjusted for each country the consultant assesses.
Do you think the MNC should use this consultant? Why or why not.
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