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D 100433 A (Pages : 2) Name.........................................

Reg. No.....................................

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SIXTH SEMESTER U.G.(CBCSS—UG) DEGREE EXAMINATION
MARCH 2024

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B.Com.

BCM 6B 15—FINANCIAL DERIVATIVES

(FINANCE SPECIALISATION)
(2019 Admission onwards)
Time : Two Hours and a Half Maximum : 80 Marks
Section A

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Answer all questions.
Each question carries 2 marks.
Ceiling 25 marks.

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1. What do you mean by hedging ?

2. What is a forward contract ?

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3. What is marking-to-market ?

4. What is straddle ?

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5. What is spread ?

6. What do you mean by option ?

7. What is option premium ?

8. What is a Bermudan option ?

9. What do you mean by swap ?

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10. What is LIBOR ?

11. What is strike price ?

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12. What is a call option ?

13. What do you mean by derivatives ?

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14. What is Arbitrage ?

15. Who is a spreader ?

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(15 × 2 = 30 marks, Ceiling 25 marks)

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Section B

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Answer all questions.
Each question carries 5 marks.

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Ceiling 35 marks.

16. Briefly explain about the participants in derivative market.

17. Discuss the features of future contracts.

18. Distinguish between futures and options.

19. Discuss the important terms used in swap contract.

20. Write about the important features of options.

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21. Discuss the factors that contribute to the growth of derivatives market.

22. List out the limitations of forward contracts.

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23. Briefly discuss the various types of futures.

(8 × 5 = 40 marks, Ceiling 35 marks)

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Section C

Answer any two questions.

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Each question carries 10 marks.

24. Discuss the various stock market derivatives in India.

25. What are derivatives ? What are the important classification of derivatives ?

26. What are options ? Explain the fundamental option strategies with suitable examples.

27. What are swaps ? Explain in detail the various types of swaps.

(2 × 10 = 20 marks)

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D 100433-A (Pages : 5) Name........................................

Reg. No.....................................

3
SIXTH SEMESTER U.G. (CBCSS—UG) DEGREE EXAMINATION
MARCH 2024

1
B.Com.

BCM 6B 15—FINANCIAL DERIVATIVES

(FINANCE SPECIALISATION)
(2019 Admission onwards)
(Multiple Choice Questions for SDE Candidates)

3 9 6
Time : 15 Minutes

1.
Total No. of Questions : 20

INSTRUCTIONS TO THE CANDIDATE

Maximum : 20 Marks

This Question Paper carries Multiple Choice Questions from 1 to 20.

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2. The candidate should check that the question paper supplied to him/her contains all the
20 questions in serial order.

3. Each question is provided with choices (A), (B), (C) and (D) having one correct answer.
Choose the correct answer and enter it in the main answer-book.

4. The MCQ question paper will be supplied after the completion of the descriptive
examination.

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BCM 6B 15—FINANCIAL DERIVATIVES

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(FINANCE SPECIALISATION)
(Multiple Choice Questions for SDE Candidates)

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1. The pay-offs for financial derivatives are linked to :

(A) Securities that will be issued in the future.

(B) The volatility of interest rates.

(C) Previously issued securities.

(D) Government regulations specifying allowable rates of return.

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2. Which of the following is not a financial derivative ?

(A) Stock. (B) Futures.

(C) Options. (D) Forward contracts.

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3. Hedging risk for a short position is accomplished by :

(A) Taking a long position.

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(B) Taking another short position.

(C) Taking additional long and short positions in equal amounts.

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(D) Taking a neutral position.

4. A long contract requires that the investor :

(A) Sell securities in the future. (B) Buy securities in the future.

(C) Hedge in the future. (D) Close out his position in the future.

5. A short contract requires that the investor :

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(A) Sell securities in the future. (B) Buy securities in the future.

(C) Hedge in the future. (D) Close out his position in the future.

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6. A disadvantage of a forward contract is that :

(A) It may be difficult to locate a counterparty.

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(B) The forward market suffers from lack of liquidity.

(C) These contracts have default risk.

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(D) All of the above.

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7. Futures contracts are regularly traded on the :

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(A) Chicago Board of Trade. (B) New York Stock Exchange.

(C) American Stock Exchange. (D) Chicago Board of Options Exchange.

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8. When interest rates fall, a bank that perfectly hedges its portfolio of Treasury securities in the
futures market :

(A) Suffers a loss. (B) Experiences a gain.

(C) Has no change in its income. (D) None of the above.

9. The price of a futures contract at the expiration date of the contract :

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(A) Equals the price of the underlying asset.

(B) Equals the price of the counterparty.

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(C) Equals the hedge position.

(D) Equals the value of the hedged asset.

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10. To hedge the interest rate risk on $4 million of Treasury bonds with $ 100,000 futures contracts,
you would need to purchase :

(A) 4 contracts. (B) 20 contracts.

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(C) 25 contracts. (D) 40 contracts.

11. Assume you are holding Treasury securities and have sold futures to hedge against interest rate
risk. If interest rates fall :

(A) The increase in the value of the securities equals the decrease in the value of the futures
contracts.

(B) The decrease in the value of the securities equals the increase in the value of the futures

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contracts.

(C) The increase in the value of the securities exceeds the decrease in the values of the

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futures contracts.

(D) Both the securities and the futures contracts increase in value.

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12. The number of futures contracts outstanding is called :

(A) Liquidity. (B) Volume.

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(C) Float. (D) Open interest.

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13. Which of the following features of futures contracts were not designed to increase liquidity ?

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(A) Standardized contracts.

(B) Traded up until maturity.

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(C) Not tied to one specific type of bond.

(D) Can be closed with offsetting trade.

14. Futures differ from forwards because they are :

(A) Used to hedge portfolios.

(B) Used to hedge individual securities.

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(C) Used in both financial and foreign exchange markets.

(D) Marked to market daily.

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15. If a firm is due to be paid in deutsche marks in two months, to hedge against exchange rate risk
the firm should :

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(A) Sell foreign exchange futures short.

(B) Buy foreign exchange futures long.

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(C) Stay out of the exchange futures market.

(D) None of the above.

16. If a firm must pay for goods it has ordered with foreign currency, it can hedge its foreign exchange
rate risk by ———————— foreign exchange futures ————————.

(A) Selling ; short. (B) Buying ; long.

(C) Buying ; short. (D) Selling ; long.

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17. Options are contracts that give the purchasers the :

(A) Option to buy or sell an underlying asset.

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(B) The obligation to buy or sell an underlying asset.

(C) The right to hold an underlying asset.

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(D) The right to switch payment streams.

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18. The seller of an option has the :

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(A) Right to buy or sell the underlying asset.

(B) The obligation to buy or sell the underlying asset.

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(C) Ability to reduce transaction risk.

(D) Right to exchange one payment stream for another.

19. The amount paid for an option is the :

(A) Strike price. (B) Premium.

(C) Discount. (D) Commission.

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20. Options on individual stocks are referred to as :

(A) Stock options. (B) Futures options.

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(C) American options. (D) Individual options.

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