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Fnce 423: Futures And Options Question Paper

Fnce 423: Futures And Options

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2012

KABARAK
UNIVERSITY
UNIVERSITY EXAMINATIONS
2013/2014 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF COMMERCE
FNCE 423: FUTURES AND OPTIONS
DAY: TUESDAY

DATE: 11/12/2012
TIME: 9.00 – 11.00 A.M. STREAM: Y4S2
INSTRUCTIONS:
TIME ALLOWED: TWO HOURS ONLY
Instructions:
? answer Question One and any other Two
? Show all your workings
? Normal distribution Tables are attached

QUESTION ONE (COMPULSORY):
a. Compare and contrast between derivatives trading and quail farming business

(10 Marks)
b. Discuss the developments that have taken place or will take place to achieve a
derivatives market in Kenya

(10 Marks)
c. Discuss the relationship between trading of futures and the 2008 global financial
crises

(10 Marks)
Total

(30 Marks)

QUESTION TWO
Omondi is an investor dealing with importation of jewels from Dubai to Kisii. Each unit
jewel sells for Sh. 5000. The future prices are likely to rise; therefore Omondi enters into an
agreement to be supplied with jewels at Sh. 5500 per unit in 4 months. The Beta factor of the
Jewel is 0.95 with the market variance standing at 1.1. the base lending rate by the central
bank currently stands at 9%.
Page 1 of 2

Required:
a. Determine the price of the option

(6 Marks)
b. Holding all other factors constant, what would happen if:
i.
Variance of the market is increased to 1.3

(4 Marks)
ii.
Time to maturity is reduced to 3 months

(3 Marks)
iii.
What are the other factors that you have considered?

(3 Marks)
iv.
Explain the various classifications of options

(4 Marks)
Total

(20 Marks)
QUESTION THREE:
a. Distinguish between the futures and forwards

(10 Marks)
b. Under what circumstances would an investor prefer swaps to other derivatives

(5 Marks)
c. Briefly highlight the various types of swaps

(5 Marks)
Total

(20 Marks)
QUESTION FOUR:
a. Discuss the various attributes of futures trading

(7 Marks)
b. Discuss the various types of futures that are used in the world

(8 Marks)
c. What do you understand by long hedge futures and short hedge futures?

(5 Marks)
Total

(20 Marks)

Page 2 of 2

Fnce 423: Futures And Options Question Paper

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