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- The below question is of the course "Financial Derivatives and Risk Management". 1. Explain the call-put parity relation and how it is justified. 2. Describe the five variables like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration that the Black-Scholes-Merton Formula uses to calculate the price of call and put options. 3. Explain how the change in these variables like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration affect the price of the option. 4. Explain how these variables like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration are grouped to show the put-call parity relationship and suggest the condition in which there is an arbitrage opportunity12 Banks use to hedge against risk through options and futures contracts in order to:* A. Reduce risk B. Manage risk C. Avoid risk D. Transfer riskWhich of the following are money market instruments? Check all that apply. Common stocks Commercial paper Corporate bonds Treasury bills Preferred stocks A financial instrument whose value is derived from the value of an underlying asset is called a (Speculation, hedge, derivative)
- 3.Explain the difference between the following concepts in finance: a) Capital market & money market b)Debt finance& Equity finance c)Systematic risk & unsystematic risk d)Coupon rate of security and Its yield to maturityWhich statement is not true regarding the market portfolio? Group of answer choices a. It includes all publicly-traded financial assets. b. It lies on the efficient frontier. c. All securities in the market portfolio are held in proportion to their market values. d. It is the tangency point between the capital market line and the indifference curve.Which of the following best describes the Bid-Ask spread in the financial markets? The profit margin a trader expects to make on a sale. The difference between the interest rates of two different currencies. The difference between the price at which one can buy a security (ask) and the price at which one can sell it (bid). The amount by which a bond's yield increases due to an increase in risk.
- 8 When considering counterparty credit risk, which of the following financial products has the largest outstanding notional amount in the marketplace A. Credit default swaps. B. Foreign exchange forwards. C. Interest rate swaps. D. Repos and reverse reposIn the futures markets, arbitrageurs are mainly interested in: a. reducing their exposure to risk of price changes. b. increasing market liquidity. c. reducing the spread between the bid and ask prices on bonds. d. attempting to make a profit by taking advantage of price differentials between different markets.Which of the following facilitates trading of short term corporate bonds in an economy? Select one: A. Capital Market B. All of the given options C. Money Market D. Foreign Exchange Market
- 1. Distinguish between the following pair of termsMoney Capital and Capital MarketsPrimary Markets and Secondary MarketsTreasury Bills and BondsStock Exchange Market and Over the Counter Trading2: Investors invest in Fixed Income securities (i.e., bonds) for the passive income that comes from coupon payments. T/FReflect on the following areas on financial risk management: 1.Volatility of foreign exchange 2.Volatility of commodity, prices and interest rates 3. Also reflect on these areas on risk management process: fowards, futures,swaps, options and hybrid securities
