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BA/JUL 2022/FIN379
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
:
INTRODUCTION TO FUTURES AND OPTIONS
COURSE CODE
:
FIN379
EXAMINATION
:
JULY 2022
TIME
:
3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of five (5) questions.
2. Please answer ALL questions and start each answer on a new page.
3. Answer ALL questions in English.
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 44 printed pages
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BA/JUL 2022/FIN379
QUESTION 1
a)
Distinguish the following terminologies.
i)
ii)
Offsetting and settlement.
Speculating and arbitraging activities.
(10 marks)
b)
Describe any two (2) intermediaries in Bursa Malaysia Derivatives Berhad (BMDB).
(5 marks)
c)
List any five (5) features of the over-the-counter market.
(5 marks)
QUESTION 2
a) Explain any two (2) significance of the MGS futures.
(5 marks)
b) Suppose you are the purchasing officer who has just signed a contract to buy 300,000
tonnes of CPO in December 2022. You expect the price to increase in the near future.
Today, the company managed to buy 50 percent of CPO for the first stage and decides to
hedge the remaining balance in futures market. The current spot price of CPO is RM2,650.
At maturity, the futures price and cash price close at RM2,650 and RM2,630 respectively.
The current futures prices are as follows:
Contract month
November 2022
December 2022
January 2023
Price per tonne
RM2,660
RM2,670
RM2,675
i)
Establish an appropriate strategy for the above.
ii)
Show the hedging benefits as measured by an effective price.
iii)
Interpret the result based on the answer in (ii).
(15 marks)
QUESTION 3
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BA/JUL 2022/FIN379
a) Based on the current situation of the world economy, a trader believes that the Singapore
stock market is about to have a better prospect and growth compared to the Malaysian
stock market. Today in early September 2022, the September KLCI Futures is quoted at
1,495 points whilst the September SGX Straits Times Index (SSTI) Futures is traded at
3,242 points. The contract value for the SSTIis the index times SGD10. The current
exchange rate is SGD1/MYR3.18 and is expected to remain unchanged until the end of
September 2022. Later at maturity, the KLCI and SSTI Futures settle at 1,355 and 3,210
respectively. Compute the gross profit or loss in Malaysian Ringgit that the trader may get
from the strategy taken.
(10 marks)
b) Mr. Isaac Mikael has long thirty (30) lots of September 2022 MGS Futures at 108.00. he
is required to pay RM2,500 of initial margin and maintain RM2,000 per contract.
i)
Prepare his marked-to-market position based on the following settlement prices.
Trading Day
Settlement
Price (RM)
ii)
1
110.21
2
109.60
3
108.90
4
111.21
5
110.79
Compute the realized profit or loss for the above trading.
(10 marks)
QUESTION 4
a) Describe any two (2) advantages of 3-month KLIBOR Futures trading.
(5 marks)
b) Your company needs to borrow RM10 million by December 2022. Today in early October,
the 3-month KLIBOR is quoted at 2.25 percent per annum. At BMDB, the December
KLIBOR Futures is trading at 98.23. Your company has arranged to borrow at 1.2 percent
above KLIBOR. In anticipation of a rising interest rate, show your hedging benefit as
measured by EIR if both prices converge at 2.5 percent per annum in December 2022.
(10 marks)
QUESTION 5
a) Give five (5) factors that affect options prices.
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BA/JUL 2022/FIN379
(5 marks)
b) Consider the following quotations of stocks traded at BMDB.
Option type
Call
Call
Put
Put
Exercise price (RM)
900
950
900
950
Options price (RM)
15
13
14
15
Sketch the payoff diagrams by determining the breakeven points, maximum profit and
maximum loss for the following strategies.
i)
ii)
iii)
iv)
Long straddle at minimum cost.
Short strangle at maximum revenue.
Long put at minimum cost.
Short call at maximum revenue.
(20 marks)
END OF QUESTION PAPER
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