Review of Previous Lecture
FINM7041 Applied Derivatives
Lecture 4 Options and Option
Trading Strategies
Last week we examined interest rates and
swaps. In particular we focused on:
Types of interest rates;
The mechanics of interest rate swaps; and,
Th

FINM7041 Applied Derivatives
Tutorial 7 Questions
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 6 Questions
Question One
A stock price is currently $40. Assume that the expected return form the stock is 15%
and its volatility is 25%. What is the probability distribution for the rate of return
(with continuous co

Center for Global Development | www.cgdev.org
2
The Role of Financial
Insurance and Hedging
(and of Multilateral
Development Banks) in
Reducing Volatility
W
hile governments, firms, and individuals in developing countries can reduce their exposure to exog

Lecture Overview
FINM7041 Applied Derivatives
Lecture 13 Review Lecture
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

Review of Previous Lecture
FINM7041 Applied Derivatives
Lecture 11 Credit, Weather, Energy
and Insurance Derivatives and
Derivative Mishaps
Last week we discussed Exotic Options
and other Non-Standard Products.
In particular, we focussed on:
Exotic Opt

Readings
FINM7041 Applied Derivatives
Lecture 12 Integrity of Capital
Markets
Code of Ethics and Standards of Professional Conduct
http:/www.cfainstitute.org/learning/products/publication
s/ccb/Pages/ccb.v2010.n14.1.aspx
Standards of Practice Handbook
h

Review of Previous Lecture
FINM7041 Applied Derivatives
Lecture 10 Exotic Options and Other
Non-Standard Products
Last week we discussed the Greek
Letters.
We focussed on:
Delta hedging;
Delta hedging with European stock options;
Delta hedging with f

FINM7041 Applied Derivatives
Tutorial 8 Questions
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 9 Questions
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

Decision 1
It is the first time we do this BankExec, so we just give a try, we
hold lots of CDs, which require plenty of interest expense, to get
enough liquid. However, it makes bank in losses.
Compared to the start quarter, interest rate is nearly the s

FINM7041 Applied Derivatives
Tutorial 11 Questions
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 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

State Government Hedging Using Financial Derivatives
Author(s): Christoph Hinkelmann and Steve Swidler
Source: State & Local Government Review, Vol. 37, No. 2 (2005), pp. 127-141
Published by: Sage Publications, Inc.
Stable URL: http:/www.jstor.org/stable

FINM7041 Applied Derivatives
Tutorial 10 Questions
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

Question 3
During
FY2015,
GBP, USD and EUR are the three major foreign currencies that Amcors
worldwide business covers. As is shown in the pie chart, the biggest total
volume that hedged by using forward contracts is buying EUR and selling
AUD, which con

FINM2002/FINM7041 DERIVATIVES ASSIGNMENT
1. This assignment accounts for 25% of students final grade for
FINM2002/FINM7041Derivatives;
2. The assignment is to be undertaken either individually or in groups
of no more than 4 students;
3. Students enrolled

Contract amount
Transaction
Transaction
Captial Expenditure
2014
>2015
< US$500,000
> US$100,000
US$ million
Months Years
Months Years
US$500,00
0-12
1-2
0-12
1-2
0
Buy CHF Sell EUR
82
30.2
Policy where
Must hedge
Local management
Must hedge 100% or
Buy G

Review of Previous Lecture
FINM7041 Applied Derivatives
Lecture 8 Options on Futures
Contracts
Last week we discussed options on stock indices and
currencies.
We first examined a stock which paid a dividend yield.
Then with reference to stock index opt

Review of Previous Lecture
FINM7041 Applied Derivatives
Lecture 7 Options on Stock Indices
and Currencies
Hull et al: Chapter 15
Last week we examined the evolution of
stock prices, and found the expected price
of a stock based on this evolution.
We als

FINM7041 Applied Derivatives
Tutorial 2 Solutions
Question One
An investor receives $1,100 in one year in return for an investment of $1,000 now.
Calculate the percentage return per annum with:
a. Annual compounding
b. Semiannual compounding
c. Monthly co

FINM7041 Applied Derivatives
Tutorial 4 Solutions
Question One
Explain why an American option is always worth at least as much as a European
option on the same asset with the same strike price and exercise date.
Question Two
Suppose that sterling-US dolla

FINM7041 Applied Derivatives
Tutorial 6 Solutions
Question One
A stock price is currently $40. Assume that the expected return form the stock is 15%
and its volatility is 25%. What is the probability distribution for the rate of return
(with continuous co

FINM7041 Applied Derivatives
Tutorial 1 Solutions
Question One
A stock when it is first issued provides funds for a company. Is the same true of an
exchange traded stock option? Discuss.
Question Two
Explain why a futures contract can be used for either s

FINM7041/2002 (Applied)
Derivatives
o
goo.gl/52vH6P
Tutorial 3 Questions
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

FINM7041/2002 (Applied) Derivatives
Tutorial 1 Questions
1 parties 2 fundingpurpose 3 market
Question One
A stock when it is first issued provides funds for a company. Is the same true of an
exchange traded stock option? Discuss.
No.The exchange traded st

(Applied) Derivatives FINM7041/2002
PLEASE NOTE: STUDENTS WILL NOT BE EXPECTED TO PREPARE
QUESTIONS FOUR AND FIVE FOR THE TUTORIAL NEXT WEEK AS THE
MATERIAL WAS NOT COVERED IN THE LECTURE.
Tutorial 4 Questions
Question One
Explain why an American option i

FINM7041/2002 (Applied) Derivatives
Tutorial 2 Questions
Question One
An investor receives $1,100 in one year in return for an investment of $1,000 now.
Calculate the percentage return per annum with:
a. Annual compounding;
b. Semi-annual compounding;
c.

FINM7041 Derivatives Quiz 1 - solutions
For full marks, please ensure to show your work.
Name:
Student Number:
Normal Tutorial Time:
Question 1: Find the continuously compounded rate in the case of 6% p.a. compounded quarterly. (3
marks)
m=4 (1 mark) Rc =