Derivatives (Prof. Ramesh Laxman)
End Term Exam (Nov-2010 Batch)
1. Given the following prices, price a forward contract for 5 months for CHF / INR (15 Marks)
Spot:
USD / INR: 44.2650 / 2750
USD / CHF: 0.8011 / 13
USD Depo Rates were as under:
| ON | 0.10% | 0.20% |
| 3M | 0.40% | 0.60% |
| 6M | 0.65% | 0.85% |
| 1Y | 1.11% | 1.21% |
CHF Depo Rate
| ON | 0.10% | 0.11% |
| 3M | 0.25% | 0.35% |
| 6M | 0.14% | 0.23% |
| 1Y | 0.72% | 0.84% |
Indian Depo Rate
| ON | 7.60% | 7.70% |
| 3M | 9.00% | 9.10% |
| 6M | 9.65% | 9.75% |
| 1Y | 10.00% | 10.25% |
2. Given the following prices for options on the stock Reliance construct a butterfly and determine its pay off. Ignore brokerage and exchange levy in the computation. Under what circumstances would deploy this strategy.
3. What is the relationship between forwards, futures, FRA and Swaps. In what way does option differ from them. Given a choice between forwards and options to hedge against a currency risk when would use a forward or option. (5 Marks)
4. W ltd based out of India is a major exporter of software. The company announced bagging a new contract from a European International bank for 24 M USD payable over 2 years. The first payment is scheduled to start 3 months from the date of announcement. Within minutes of the announcement the CFO of the company calls you and seeks your advice on hedging the future realization on the contract. What is the most ideal contract to hedge the risk. Given the following prices what can the customer expect to get in the hedge contract. (10 Marks)
USD / INR: 44.2650/2750
USD / INR: Forward Premia
| 1M | 24.75 | 26.75 |
| 3M | 72.75 | 74.75 |
| 6M | 143.25 | 145.25 |
| 1Y | 242.00 | 244.00 |
USD Depo Rates
| ON | 0.10% | 0.20% |
| 3M | 0.40% | 0.60% |
| 6M | 0.65% | 0.85% |
| 1Y | 1.11% | 1.21% |
| 2Y | 0.55% | 0.75% |
INR Depo Rate
| ON | 7.60% | 7.70% |
| 3M | 9.00% | 9.10% |
| 6M | 9.65% | 9.75% |
| 1Y | 10.00% | 10.25% |
| 2Y | 7.87% | 7.89% |
5. What is an inverse floater? Given the following quotes in the market what would be the pricing for an inverse floater for 3 years. (5 Marks)
3 Year Interest Rate – 9.330% / 9.380%
3 Year OIS Swap Rate – 7.79% / 7.81%
6. How can a treasurer effectively use the swap market to arrange borrowing in the most liquid market and then use the swap market to lay off the resultant risk. (5 Marks)
7. What is the break forward contract and how it is structured. How does it differ from a range accrual. (5 Marks)
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