NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY DEPARTMENT OF BANKING MASTER OF SCIENCE DEGREE IN BANKING AND FINANCIAL ECONOMICS
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1 NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FOCULTY OF COMMERCE DEPARTMENT OF BANKING MASTER OF SCIENCE DEGREE IN BANKING AND FINANCIAL ECONOMICS NAME OF STUDENT : AARON KUUDZEREMA STUDENT NUMBER : N D ADDRESS : NSSA HOUSE, KARIBA TELEPHONE : CELLPHONE : / kuudzeremaa@nssa.org.zw; akuudzerema@gmail.com SUBJECT CBA 5101: FINANCIAL MARKETS AND REGULATION: INDIVIDUAL ASSIGNMENT 1 YEAR/SEMESTER YEAR 1 SEMESTER 1:1 1
2 Question 1 (1) Profit/Loss = (Spot rate- future rate) x value of contract x number of contract. Therefore as at 1 March US$4,000,000.00/ 1.600= 2,500, Number of contracts available = 2,500, = 100 contracts Number of contracts to purchase US$4,000, = 100contracts Profit/loss as at March 1 = ( ) x x 100 = US$37, Profit /loss as at May 10 Firstly we calculate futures contract in pounds, which is equals to US$4,000, = 2,544, Therefore number of contracts = 2,544, = 102 contracts Profit/loss as at May 10 = ( ) x25000 x 102 = UD$33, (11) Hedge Efficiency Ratio = Change in spot price/selling price Change in future price/purchase price = = -0, ,028 = 1,
3 Question 2 (a) Bull call spread Buying a call option on the stock of XYZ ltd with a strike price of 4100 at $ and selling the call option on the same stock of XYZ ltd of 4400 at $ (b) (1) Maximum loss or risk occurs below 4100 (the lower strike) and is the net debit paid. Therefore risk = $ $35.40 = $ (11) Maximum profit or reward occurs above 4400 (the higher strike and is the difference between the strikes ( ) less net debit to enter the trade. Therefore profit = ($4400-$4100) ($ $35.40) = $300-$ = $ (111) Breakeven point = Lower strike price + net debit = $ ($ ) = $ = $4,
4 (c) Net pay off from call Net pay off from call Net pay off $ (buy) (sell) (d) ST Maximum profit $ Maximum loss $ Breakeven $
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