SIPNA COET/ MBA/QB-FD

SIPNA COLLEGE OF ENGINEERING & TECHNOLOGY

DEPARTMENT OF MANAGEMENT STUDIES
SUBJECT: Financial Derivatives

UNIT - 1.
1. Briefly describe the evolution of derivatives market in India.
2. Explain the financial derivatives. What are its importance features? Explain the
suitable example.
3. Explian the different types of financial derivatives alongwith their features in
brief.
4. Explain the merits and demerits of financial derivatives.
5. Bring out the historical development of financial derivatives.
6. Last decade has witnessed a remendous growth of derivatives market
worlwide. Discuss the statement in the light of history of derivatives.
7. What do you understand by the terms derivatives and financial contract?
Explain with suitable example.
8. Explain the model applicable for valuing of future derivatives under following
conditions:
i. When no income is given
ii. When a known amount of income is given.
iii. When the underlying asset provides a known yield.
9. What do you mean by the term Financial derivative? What are different types
of financial derivatives? Explain the features, merits and demerits of forward
contracts..
10. Discuss different types of traders in derivatives market.
11. Compare and contrast between forward, futures, options ans swaps.
12. Derivative are considered as risk management tools used by
organizations/investors/individuals. Comment upon the statement.
13. Write a detailed note on uses of financial derivatives.

SIPNA COET/ MBA/QB-FD
UNIT 2
1. Explain the nature and concept of forward derivatives. Also discuss the
advantages and disadvantages of forward derivatives.
2. There are many other derivative securities in the market other than forwards
and futures. Explain them giving their detailed classification.
3. What is the legal difference between forward and futures contract?
4. Define forward contract. Also discuss the features of forward contract.
5. Forward contracts act as fore-runners of futures market. Critically evaluate the
statement in the light of growth of forward market worldwide.
6. Write detailed note on classification of forward contracts with examples.
7. What are the important terms use in trading forward contract? Explain.
8. Discuss the pricing mechanism of forward contract.
9. What are the various risk associated with forward contract? Explain how these
can be reduced by using futures contract.
10. Bring out the relationship between forward and spot prices. Explain with the
suitable examples.


UNIT 3
1. Discuss the meaning and features of futures contract. Distinguish it from
forward contracts.
2. What is the financial futures contract? Discuss the growth offinancial futures
with examples.
3. Explain the importance of futures markets in context to economic growth of a
country.
4. What is future contracting? Explian with examples. Also discuss the types of
financial futures contracts.
5. Explain the brief mechanism of futures market.
6. Define hedging. Explain different hedging models.

SIPNA COET/ MBA/QB-FD
7. What is Market to Market? How is making to market done? Explain
8. Discuss the arguments for and against hedging by using futures.
9. Present different hedging models applicable in future trade.
10. What is future contract? How it is different from a forward contract? Explain.
11. A speculator predicts a price increase in the gold futures market from current
futures price of Rs.5000 per 10 gram. The market lot is 100 gram. Speculator
buys one lot of futures Gold of Rs. (5000 X 10) Rs.50000. Assume that margin
is 10%. What amount of margin money is required, if prices of gold increase
by 20%? What will be profit to speculator?
12. An April ABC 450 futures is available at Rs.1400. How many short contracts a
portfolio manager would need who want to hedge Rs.5.75 crores of his
portfolio if the beta value is 2.0?
13. A 3 month future contract to buy a security having current price of Rs.900 is
available for trade (buying or selling). The risk free rate of interest is 6%
continuously compounded. At what price should it sell if the security
generates a dividend income of Rs.100 to be received at the time of expiration
of the future?
14. Consider the position of an investor who shorts 1000 TISCO shares in MAY
whan the price per share is Rs. 100 and closes out the position by buying
them back in August when the price per share is Rs.80. Suppose that a
dividend of Rs.2 per share is paid in June. What will be the gain/loss to
investor?
15. If you were short one Canadian dollar future contract for December delivery
and the Wall Street Journal reported the following price information, what
would be the market-to market cash flow consequences for you?
Month Open High Low Settle Change
Dec. .6321 .6340 .6285 .6313 +.0045

16. Discuss different types of interest rate futures.
17. Do hedgers need speculators in futures market? Critically evaluate the

SIPNA COET/ MBA/QB-FD
statement.
18. Write a short note on :
a. Hedging V/S speculating
b. Arbitraging V/S spreading
c. Hedging V/S Insurance
19. A 3 month future contract to buy a security having current price of Rs.1050 is
available for trade (buying or selling). The risk free rate of interest is 6%
continuously compounded. At what price should it sell?
20. A 3 month future contract to buy a security having current price of Rs.1500 is
available for trade (buying or selling). The risk free rate of interest id 6 %
continuously compounded. At what price should it sell if the security
generates a dividend at the rate of 2 %
21. A Portfolio manager wants to hedge his portfolio of Rs.1.5 crores through a
3-months XYZ futures contract selling at Rs.100. How man future contracts he
needs for hedging his risk?
22. A PRQ 300 futures contract is selling Rs.87 on the first working day of the
week. The prices of the contract undergo charges on the subsequent days of
the week as Rs.77, Rs.89, Rs.74 and Rs.63 respectively on remaining five days
of the week. The trade began with initial margin of Rs.5000 and maintenance
margin of Rs.2500. When and for how much amount the call notice shall
become due?
23. An investor buys 1500 securities at Rs.22 each by raising a loan from the
capital market @ 10% interest. He shors on a future contract to be exercised
at the end of one year to hedge his risk.
a. Calculate the price of the future.
b. Calculate the price of the future if the investor receives a dividend on
securities of Rs.2900 towards the end of the year.
c. Calculate the price of the future with a known yield @ 5%.


SIPNA COET/ MBA/QB-FD
UNIT 4
1. What do you understand by options and option market? Discuss with suitable
examples. Also explain is significance in financial markets.
2. Write a detailed note on historical background of options market.
3. What are the important terms use in options contract? Explain with examples.
4. What is option contract? Explain the different classifications of options with
suitable illustration
5. Explain the concept of option in context to;
a. In-the-money
b. At-the-money
c. Of-the-money
6. Distinguish between the exchange traded options and OTC traded options.
Which options are popular? And why?
7. What are the important positions which can be taken in an option contract by
seller and buyer in the different situations? Explain.
8. Explain the properties of stock options.
. Options are the safest instrument for the investors for investment purpose.
Examine the statement critically.
10. Distinguish between European options and American options in context to
valuation of an option contract. Explain with example.
11. What is an option contract? Discuss different types of option contracts.
12. The share of X Ltd. Company stands at Rs.120, put options with a strike price
of Rs.130 are priced at Rs.15.
i. What is the intrinsic value of options?
ii. What is the time value of options?
iii. If the price falls to Rs.50 by the expiry date, what would be the profit/loss
for the holder and investor of the options?
13. The call options on Reliance Share are available with the strike price of Rs. 400,
Rs.500 and Rs.600 and expiration date is three months. The call prices are Rs.60,

SIPNA COET/ MBA/QB-FD
Rs.40 and Rs.30 respectively. Explain how the options can be used to create a
butterfly spread. Construct a table showing profit varies with stock price for the
butterfly spread.
14. Discuss the various properties of stock option.
15. Explain the different combination strategies for trading option derivatives.
16. Bring out the similarities and differences between Black & Scholes Option
Model and Binomial Model.
17. A stock is currently priced at Rs. 20 each. At the end of three months the stock
price will be either Rs.22 or Rs.18. Calculate the value of an European Call Option
to buy this stock for Rs.21.
1. Black Scholes option pricing model is one of the important model for pricing
the option. Discuss the statement in the light of various models for option pricing.
19. Discuss the Black-Scholes option pricing model with suitable examples.
20. What are the various assumptions of Black-Scholes option pricing model?
Discuss the various variants of Black-Scoles option pricing model.
21. Consider the following data:
Stock Price Rs.50
Month of expiration 3 months
Risk-free rate of interest 10% p.a.
Standard Deviation of Stock 40%
Exercise Price Rs.55
Option Type European Call
Calculate value of call option as per Black-Scholes Model.
22. Option of ABC 500
Stock Price Rs.120
Call exercise price Rs.100
Exercise Date 6 months
Estimated standards deviation 30%
Current market price Rs.28
Risk-free return 8% p.a.
Calculate call option price of the stock as per Black Scholes Model

SIPNA COET/ MBA/QB-FD
UNIT 5
1. What is a swap and swap contract? Discuss with suitable examples along with
risks involved.
2. Write a detailed noe on evolution of swap market.
3. What is a swap? Explain in brief its different types.
4. What is a financial swap? Discuss the features of a swap contract with example.
5. Write a note on types of interest rate swaps with examples.
6. Discuss different types of interest rate futures.
7. What are different types of interest rate derivative securities? Explain the
meaning and types of European swap options.
8. Explain the models applicable for valuation of different types of swap
derivatives.
9. What are the types of currency swaps? Explain their structure also.
10. An investor holds an option to sell 1500 securities at Rs.92.50 each. The
security is currently selling in the stock market at Rs.89.35. Show the impact of
the option on the investor.
11. A person takes a loan of Rs.55000 at a fixed rate of interest 10.50%. He enters
into an interest rate swap with a bank which agrees to pay floating rate of interest
on the said loan. Calculate the value of this swap for the person if the floating rate
of interest at the time is 10.75%.