Financial Derivatives (FIN405)

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College of Administrative and Financial Sciences

Assignment-2

Financial Derivatives (FIN405)

Course Name: Financial DerivativesStudent’s Name:
Course Code: FIN405Student’s ID Number:
Trimester: 2ndCRN: 22992
Academic Year:

For Instructor’s Use only:

Instructor’s Name:
Students’ Grade:   /15Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

  • This assignment is an individual assignment.
  • The Assignment must be submitted only in WORD format via allocated folder on Blackboard.
  • Assignments submitted through email will not be accepted.
  • Students are advised to make their work clear and well presented. This also includes filling your information on the cover page.
  • Students must mention question number clearly in their answer.
  • Late submitted assignments will NOT be entertained.
  • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
  • All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).

Submissions without this cover page will NOT be accepted.

Assignment Questions

Q1: Explain the Covered Call and Protective Put strategy with example?  (03Mark)

Q.2 Illustrate with example strategies using the three different types of swaps. (03 Mark)

Q.3 a- The price of a forward contract on a generic asset that expires on September10 whose spot price as of June10 is $45,assuming that the annually compounded risk-free rate is 6.01percent.   (03 Mark)

b- On a particular day, the S&P 500 futures settlement price was 899.30. You buy one contract at the settlement price at around the close of the market. The next day the contract opens at 899.70, and the settlement price at the close of the day is 899.10. Determine the value of the futures contract at the opening, an instant before the close, and after the close. Remember that the S&P futures contract has a $250 multiplier.    (03 Mark)

c- Consider a currency swap for $10 million and SF 15 million. One party pays dollars at a fixed rate of 9 percent, and the other pays Swiss francs at a fixed rate of 8 percent. The payments are made semiannually based on the exact day count and 360 days in a year. The current period has 181 days. Calculate the next payment each party makes. (03 Mark)