RISK MANAGEMENT

ASSIGNMENT 1
Date of Submission : 19.2.2013 (Shall not be extended)
Total marks 30
Q1 Define the following:
i.
ii.
iii.
iv.
v.

(5)

Derivatives
Forwards and Futures
Options
Swap
Hedging

Q2 Differentiate between forward contract and futures contract

(5)

Q3 What is Risk? Explain the types of risk

(5)

Q4 Write a short note on Cost of Carry model

(5)

Q5 Hyundai Motors exports cars to Germany, and every three months it receives EUR 5,00,000
from car shipments. On March 1, the exchange rate between the Indian rupee and Euro is
EUR1=INR 75. The euro interest rate is 6%p.a, while the interest rate in India is 9%p.a.
Hyundai wants to hedge its euro receipt through forward contracts for next 6 months. The 180day forward rate is EUR1=INR76.
(5)
i.
Calculate the 180-day theoretical forward rate
ii. Identify whether there is any arbitrage opportunity
iii. If there is any arbitrage opportunity, calculate the arbitrage profit for EUR=5,00,000
Q6
An investor purchased one contract of Nifty futures on 16th September 2012 when Nifty was
trading at 4800. Initial margin per contract is Rs. 18000. Maintenance margin is Rs. 12000
Closing prices of Nifty for next 10 days are:
Date (Sep
2012)
17
18
19
20
21
24
25
26

Closing price
of Nifty
4850
4890
4810
4700
4650
4580
4620
4510

27
28

4375
4450

Find daily and cumulative gain/loss for all the days using above information. When the investor
will get margin call? {Nifty futures lot size =50}
(5)