KIRLOSKAR INSTITUTE OF ADVANCED MANAGEMENT STUDIES –Pune.

Academic Year: 2021-2022 MID TERM- I

Programme: PGDM Trimester: IV
Course Code: 4FMC02 Date: 25-08-2021
Course Title: Financial Derivatives. Batch :B23
Time: 60 Min Maximum Marks: 20
Answer all the questions
Each question carries 5
marks
SL.NO Questions Marks
1. How do you hedge against interest rate risk for the below scenarios? 5M
(i) if you are long on portfolio of bonds using Treasury Bond Futures
(ii) if have you borrowed by issuing short term commercial papers using
Treasury Bill Futures
(iii) if you are going to borrow after 3 months for 6 months using Forward
Rate agreement

2. An investor enters into a short futures position in 10 contracts in gold at 5M

a futures price of $276.50 per oz. The size of one futures contract is
100 oz. The initial margin per contract is $1,500, and the maintenance
margin is $1,100. Suppose the futures settlement price on the first day
is $278.00 per oz. What is the new balance in the margin account?
3. Mr. Ramesh on 1st April 2017 has constructed a portfolio consisting of
shares of details, which are given below:

Script Market Price No of Shares Beta

Rs
ACC 1750 5000 0.9
Cipla 550 8000 0.85
BHEL 140 10000 0.8
GAIL 390 15000 0.75
IDBI 60 10000 1.05

Time of investment is 3 months

The annual cost oof capital to the investor is 10% per annum
(Continuous Compounding) and current value of Nifty Index is at 9950.

You are required to

a. (i) Calculate the beta of the portfolio 6M

(ii) Calculate the fair value of Nifty June Futures contracts required to
hedge.
(iii) If Nifty future contract has got a lot size of 75 units, find the no.
of contracts required of Nifty Future the investor needs to short
b. Spot price of “Channa” is Rs 9,000 per 100 kilograms. A three-month 4M
future is being traded at a price of Rs 9,148 per 100 kilograms. If the
risk-free rate is 12% per annum with continuous compounding, then
find out the whether the given Futures prices is correctly priced. If not,
is
there any arbitrage and state the arbitrage process