1. An investor has just obtained the following quotes for a European option on GE stock worth $31. Features of both options are following. European synthetic call $3 European synthetic put $2.25 Strike price $30 Expiration 3 months Risk free rate 10% annual Find an arbitrage opportunity from put-call parity.

Q: etween: i. A Primary Market and Secondar

A: Primary Market The process through which a market becomes a source of securities is referred to as a…

Q: Describe about different types of investment derivatives.

A: Derivatives: Derivatives are some financial instruments which are meant for managing risk and…

Q: All parties involved in a swap will benefit from the creation of a swap arrangement. a. True O b.…

A: A swap arrangement refers to an agreement between two parties to exchange specified cash flows at…

Q: Briefly explain Option Distinguish between Call option and a put option

A: Options are financial instruments whose value is based on underlying securities. An option contract…

Q: How can the Equivalence calculations be done at a varying interest rate?

A: Interest Rate - The amount of interest due each period expressed as a percentage of the amount lent,…

Q: Explain in detail the pricing applications of commodity derivatives.

A: Commodity Derivatives are the financial instruments which are traded on commodity as underlying…

Q: .How can options, futures, and forward contracts be used to devise simple hedging strategies?…

A: Options, futures and forwards are derivative contracts that can be used to hedge the underlying…

Q: ferent Between spot and forward ma

A: In commodity or any assets markets there are many types of markets are there depending on the basis…

Q: Define each of the following terms:a. Option; call option; put option

A: Options: They are money related instruments subject to the derivatives of hidden protections, for…

Q: Describe Option-Pricing Theory.

A: Option pricing theory is a technique used to calculate the fair value of an option by using…

Q: age of over-the-counter products such as swaps or forwards contracts, relative to exchange-traded…

A: Exchanged traded products are traded on stock exchanges where as over the counter products are…

Q: Describe the accounting for the fair value option.

A: The fair value option allows the business to record its assets and liabilities at their fair value.…

Q: )What are the motivations behind DeFi?

A: Q-1 ) (c) 1,2,3and 4 Q-2) (b) 1,2,and 3

Q: Highlight the key difference between option, futures and forward contracts.

A: Option, futures and forwards are three examples of financial derivatives. Option gives traders the…

Q: Define the terms, or give short explanations.         -futures contract/option -hedge -hedger…

A: A derivative is a financial contract whose value is derived from the underlying asset, which could…

Q: Discuss the assumptions, approach, estimation, benefits, limitations, and criticisms of Arbitrage…

A: Arbitrage Pricing Theory is a multi-factor pricing model. Arbitrage Pricing Theory can be used to…

Q: Define alternative trading system (ATS)

A: An alternative trading system (ATS) is not an exchange-regulated, yet a position that suits its…

Q: Fully discuss the Arbitrage Pricing Model. Show formula and give examples.

A: There are multiple methods that estimate the stock's required return. The capital asset pricing…

Q: Explain what is meant by forward contracts and futures using examples. List the main advantages /…

A: An option offers the holder of it the right, and not the responsibility, to buy or to sell an asset…

Q: are broker markets and dealer markets? Distinguish between these

A: Broker market and dealer market are two different methods of trading in stock market.

Q: Explain the call-put parity relation and how it is justified. Black-Scholes-Merton formula uses…

A: A contract for an option grants the buyer the right to sell or buy the assets or securities at the…

Q: Which of the following people represents several insurance companies but owns the policy…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Explain the following terms, Option price and Strike price

A: Option price and strike price are essential terms which are used in derivative markets. These are…

Q: The exposure of the call option to changes in the exchange rate is given by Cu-Cd Su-Sd A= where Cu…

A: Exposure, in the context of financial derivatives such as options, refers to the sensitivity or…

Q: Differentiate between the following types of markets: physical asset vs. financial markets, spot vs.…

A: Note : As per the guidelines, only first three parts will be answered.

Q: The advantage of over-the-counter products such as swaps or forwards contracts,relative to…

A: The question is multiple choice question. Required  Choose the Correct Option.

Q: How are derivatives recorded?

A: Derivatives:   Derivatives are some financial instruments which are meant for managing risk and…

Q: Explain how both the intrinsic value and the time value are measured for a forward contract to sell…

A: SOLUTION:- An option ,represents the right rather than an obligation to buy or sell the security.…

Q: When is a forward contract preferred over an option contract ?

A: Forward contract and Option contract Option contract gives the right to the holder to buy or sell…

Q: Is the “forward price” the same thing as the “value of the forward contract” Explain.

A: Derivative is defined as the contract, which are between the two or more parties, who has the value…

Q: Explain the nature of an option contract.

A: An option contract is a financial derivative instrument that gives the holder the right, but not the…

Q: Put–Call Parity - A put and a call have the same maturity and strike price. If they have the same…

A: Explanation : When share Put and Call having the same maturity & also Strike price is same then…

Q: What are the assumptions of Option-pricing models?

A: There are two option pricing models they are: Binomial model option pricing model Black Scholes…

Q: What is the main purpose of a hedging strategy using a forward contract or a futures contract?…

A: Hedging-It is a risk management strategy undertaken by individuals, investors, corporates to offset…

Q: What apparatus exists to facilitate purchases and sales of futures contracts?

A: The question is based on the concept of trading in future contract in derivative segment of stock…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.