Chapter 02 - Financial Services: Depository Institutions
Chapter 02
Financial Services: Depository Institutions
True / False Questions
1. In recent years, the number of commercial banks in the U.S. has been increasing.
True False
2. Most of the change in
Assignment 2 [30 October, 4pm]
Introduction to Derivative Securities INVE3000
Penalty will apply for late submission.
Assignment should be submitted in the box provided in building 402 - level 5 Finance
department administrations [Bentley Campus only]. No
Chapter 24 - Swaps
Chapter 24
Swaps
True / False Questions
1. The extreme growth of the swap market has raised concern about the credit risk exposures
of banks engaging in this market.
True False
2. The largest segment of the global swap market is the cur
FINM2002 Derivatives
Lecture 9 The Greek Letters
Hull et al: Chapter 17
Review of Previous Lecture
Last week we discussed options on futures.
We focussed on:
What are futures options?;
Why are futures options popular?;
Put-call parity with futures optio
FINM2002 Derivatives
Lecture 5 Binomial Option Pricing
Model
Hull et al: Chapter 12
Review of Previous Lecture
Last week you examined option mechanics and option
trading strategies, and how they can be used for
hedging against particular forms of risk.
FINM2002 Derivatives
Lecture 7 Options on Stock Indices
and Currencies
Hull et al: Chapter 15
Review of Previous Lecture
Last week we examined the evolution of
stock prices, and found the expected price
of a stock based on this evolution.
We also used t
FINM2002 Derivatives
Lecture 8 Options on Futures
Contracts
Hull et al: Chapter 16
Review of Previous Lecture
Last week we discussed options on stock indices and
currencies.
We first examined a stock which paid a dividend yield.
Then with reference to
FINM2002 Derivatives
Lecture 1 - Course Overview
Hull et al: Chapters 1 & 2
1. Course Overview
FINM2002 builds on the knowledge you have developed in
Foundations of Finance (FINM1001).
In this unit, we provide an in-depth examination of the following
de
FINM2002 Derivatives
Lecture 4 Options and Option Trading
Strategies
Hull et al: Chapters 9, 10 & 11
Review of Previous Lecture
Last week we examined interest rates and
swaps. In particular we focused on:
Types of interest rates;
The mechanics of inter
FINM2002 Derivatives
Lecture 6 Black-Scholes Option
Pricing Model
Hull et al: Chapter 13
Review of Previous Lecture
Last week we examined option pricing
methods within a binomial framework
(through the use of binomial trees).
We discussed the idea of ri
FINM2002 Derivatives
Lecture 2 Forwards and Futures
Hull et al: Chapters 3 & 5
Review of Previous Lecture
In last weeks lecture we went through a
broad overview/revision of forward, futures
and options contracts.
In particular we focussed on the
mechani
FINM2002 Derivatives
Lecture 3 Interest Rate Contracts
& Swaps
Hull et al: Chapters 4 & 7
Review of Previous Lecture
In last weeks lecture we examined
forwards and futures contract and how
they are related to the spot price of the
underlying asset. In pa
FINM2002 Derivatives
Lecture 12 Integrity of Capital
Markets
CFA Standards of Practice Handbook, Standard IV:
Duties to Employers. Pgs. 105-126
Readings
Code of Ethics and Standards of Professional Conduct
http:/www.cfainstitute.org/learning/products/pub
FINM7041 Applied Derivatives
Tutorial 10 Solutions
Question One
Describe the payoff from a portfolio consisting of a lookback call and a lookback put
option with the same maturity.
Question Two
Consider a chooser option where the holder has the right to c
FINM7041 Applied Derivatives
Tutorial 8 Solutions
Question One
Suppose you buy a put option contract on October gold futures with a strike price of
$400 per ounce. Each contract is for the delivery of 100 ounces. What happens if you
exercise when the Octo
FINM7041 Applied Derivatives
Tutorial 7 Solutions
Question One
A currency is currently worth $0.80. Over each of the next two months it is expected
to increase or decrease in value by 2%. The domestic and foreign risk-free interest
rates are 6% and 8%, re
FINM7041 Applied Derivatives
Tutorial 11 Solutions
Question One
The position of a buyer of a credit default swap is similar to the position of someone
who is long in a Treasury bond and short a corporate bond. Explain this statement.
Question Two
Suppose
FINM7041 Applied Derivatives
Tutorial 9 Solutions
Question One
What is the delta of a short position in 1,000 European call options on silver futures?
The options mature in eight months, and the futures contract underlying the option
matures in nine month
FINM7041 Applied Derivatives
Tutorial 12 Questions
Question One
(Notification of Client Bonus Compensation): Geoff Whitman, a portfolio
analyst for Adams Trust Company, manages the account of Carol Cochran,
a client. Whitman is paid a salary by his employ
Foundations of Finance
Lecture 9
Arbitrage: Forwards and Futures Contracts
1. Lecture Overview
In the course of todays lecture we will discuss forward and
futures contracts. These contracts belong to a larger class of
instruments called derivatives. Deriv
FINM2002 Derivatives
Lecture 10 Exotic Options and Other
Non-Standard Products
Hull et al: Chapter 22
Review of Previous Lecture
Last week we discussed the Greek
Letters.
We focussed on:
Delta hedging;
Delta hedging with European stock options;
Delta
FINM2002 Derivatives
Lecture 13 Review Lecture
Lecture Overview
In Todays Lecture we will discuss:
The format of your final exam;
Exam consultation times;
Go over the solutions to the practice
questions; and,
Answer general questions you have regardi
FINM2002 Derivatives
Lecture 11 Credit, Weather, Energy
and Insurance Derivatives and
Derivative Mishaps
Hull et al: Chapter 23, 24 & 25
Review of Previous Lecture
Last week we discussed Exotic Options
and other Non-Standard Products.
In particular, we
FINM2002 Derivatives
Lecture 5 Binomial Option Pricing
Model
Hull et al: Chapter 12
Review of Previous Lecture
Last week you examined option mechanics and option
trading strategies, and how they can be used for
hedging against particular forms of risk.
FINM7041/2002 (Applied) Derivatives
Tutorial 3 Solutions
Question One
Suppose that zero interest rates with continuous compounding are as follows:
Maturity (years)
1
2
3
4
5
Rate (% per annum)
8.0
7.5
7.2
7.0
6.9
Calculate forward interest rates for the s
Financial Instruments and Risk
Management
Review of Previous Lecture
Last week we
futures.
We focussed on:
discussed
options
on
what are futures options?;
why are futures options popular?;
put-call parity with futures options;
bounds for futures options;
Financial Instruments and Risk
Management
Lecture 8 - Options on Futures
Contracts
Review of Previous Lecture
Last week we discussed options on stock indices
and currencies.
We first examined a stock which paid a dividend
yield.
Then with reference to sto
Financial Instruments and Risk
Management
Lecture 7 - Options on Stock Indices
and Currencies
Review of Previous Lecture
Last week we examined the
evolution of stock prices, and found
the expected price of a stock based
on this evolution.
We also used the
Financial Instruments and Risk
Management
Lecture 6 - Black-Scholes Option
Pricing Model
1
Review of Previous Lecture
Last week you examined option
pricing methods within a binomial
framework (through the use of
binomial trees).
You discussed the idea of
Financial Instruments and Risk
Management
Lecture 5 - Binomial Option Pricing
Model
Review of Previous Lecture
Last
week
you
examined
option
mechanics and option trading strategies,
and how they can be used for hedging
against particular forms of risk.
Th
Corporate Finance (FINM2001)
Tutorial Five - Questions
Question One
Problem 12.2, pg. 466.
Suppose the market portfolio has an expected return of 10% and a volatility of 20%,
while Microsofts stock has a volatility of 30%.
a) Given its higher volatility,