Page 64 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Unit 5: Pricing of Future Contracts

8. State the basic calculation for finding the lower and upper bounds of futures price, in the Notes
presence of transaction cost and commissions. Illustrate your answer with an example.
9. If the objective of the hedger is to minimize risk, a hedger ratio of 1.0 is not necessarily
optimal. Discuss.
10. Discuss the role of beta in making investment decisions.

Answers: Self Assessment

1. terminal value 2. futures

3. 'no arbitrage opportunities' 4. risk free rate
5. basis 6. arbitrage-free
7. cost of carry 8. storage cost
9. stock index 10. Futures Price
11. False 12. True

13. False 14. True
15. False

5.8 Further Readings

Books Apte, P.G., International Financial Management, Tata McGraw-Hill Publishing
Avadhani, V.A. : Securities Analysis and Portfolio Management.

Avadhani, V.A. : Capital Market Management.
Avadhani, V.A. : Investments and Securities Markets in India.
Bhole, L.M. : Financial Institutions and Markets.
Chance, Don M: An Introduction to Derivatives, Dryden Press, International Edition

Chew, Lilian: Managing Derivative Risk, John Wiley, New Jersey.
Company Limited, New Delhi, 1997.
Das, Satyajit: Swap & Derivative Financing, Probus.
"Derivatives Market" NCFM Module, NSE India Publications

FRB, “Overview of Derivative Disclosures by Major US Banks,” Federal Reserve

Online links www.managementstudyguide.com
www.nse.org

www.ncfm-india.com
http://www.nseindia.com/content/ncfm/ncfm_modules.htm

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