Page 201 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Derivatives & Risk Management

Notes  The inquiry window enables the user to view information such as Market by Price (MBP),
Previous Trades (PT), Outstanding Orders (OO), Activity log (AL), Snap Quote (SQ), Order
Status (OS), Market Movement (MM), Market Inquiry (MI), Net Position, On line backup,
Multiple index inquiry, Most active security and so on. Relevant information for the
selected contract/security can be viewed.

14.8 Keywords

Basic Risk: The derivative used may not be a perfect match with whatever it is intended to hedge
so that when the value of the underlying asset falls, the value of the derivative may not rise by
the expected amount.
Inquiry Window: The inquiry window enables the user to view information such as Market by
Price (MBP), Previous Trades (PT), Outstanding Orders (OO), Activity log (AL), Snap Quote (SQ),
Order Status (OS), Market Movement (MM), Market Inquiry (MI), Net Position, On line backup,
Multiple index inquiry, Most active security and so on. Relevant information for the selected
contract/security can be viewed.

Market Risk: Market risk is the possibility that the value of the derivative will change.
Market Watch Window: The market watch window is the third window from the top of the
screen which is always visible to the user.

Risk Vision: Risk Vision is central to a financial institutions risk management function providing
a consolidated view of risk exposures across multiple systems, incorporating both the trading
and banking book.

14.9 Review Questions

1. What are the key guidelines issued under L C Gupta Committee Report?
2. Discuss the concept of risk vision.
3. Non-financial firms need to watch out for three main risks when using derivatives. What
are those risks?
4. Write a note on NEAT-F&O trading system.
5. Clearing members carry out risk management activities and confirmation /inquiry of
trades through the trading system. What are the other parties of trading system?
6. State the difference between market watch window and inquiry window.
7. Discuss the role and functions of basket trading.

8. Derivatives bought from banks are exposed to bigger credit risks than those bought from
exchanges. Why?
9. Discuss the MPB.

10. What are the key reasons for managing derivative risks?
Answers: Self Assessment

1. True 2. False
3. False 4. True
5. True 6. Risk Vision

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