Q-1. The current stock price be SAR 50 and that can go up or down by 20 percent per period. The risk-free rate is 10 percent. Use one binomial period. (5 Marks)
a) Determine the two possible stock prices for the next period. (1 Mark)
b) Determine the intrinsic values at expiration of a European call option with an exercise price of SAR 45. (1.5 Marks)
c) Find the value of the option today. (1.5 Marks)
d) Calculate the hedge ratio. (1 Mark)
Q-2. Explain the concept of moneyness? (3 Marks)
Q-3. Explain the Options and discuss the difference between American and European options.
(2 Marks)
Answers:
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Q-4 Derivatives are used to manage financial risk. Do you agree? (100-150 Words)
You are required to reply to at least two peer answers. These post replies must need to be substantial and constructive. (40-60 Words per response)
Peer answer 1: All participants in the financial market find that financial derivatives are useful tools for risk management, and they are used by three types of market participants: commercial banks, investment banks, and investors. Easy to understand and that can create credit risk and so must be understood Complex derivations depend on complex models to use which leads to the risk of this chosen model There are credit rating agencies explaining this complexity to investors but their rating can be misunderstood and as a result, may create several risks
It appears that finding a variety of derivative products may be useful for their own risk management purposes and there are several ways and strategies for using a financial derivative can be beneficial for risk management. At the same time, derivatives present some significant challenges to risk management.
Response 1: –
Peer answer 2: Derivatives are most commonly exchanged to decrease risk or to bet on increasing risk in order to make a profit, and their value is determined by the quantity demanded for the asset (Chance & Brooks 2015). If an investor with sterling accounts wished to buy shares in a firm with dollars, they would indeed be subjected to exchange rate risk because the value of the pound could fall or grow against the dollar over the investment term, influencing the value of their investment. To avoid this danger, the investor could purchase a currency derivative to lock in a set exchange rate and protect their funds.
Derivatives are financial products whose values are based on the value of other assets such as stocks, bonds, or foreign exchange. Derivatives can be used to hedge a position (protecting against the danger of an asset falling in value) or to speculate on future movements in the underlying instrument. Hedging is a prevalent kind of risk management in the stock market, where investors employ put options, a type of derivative, to protect individual stocks or entire portfolios. A derivative is a financial product whose price is linked to (or generated from) the price of another asset.
Work force the executives is an acknowledged technique for overseeing individuals in the organization. Human asset the executives is a current strategy for overseeing individuals and their assets in the organization.
Staff the executives centers around representative’s administration, specialist advantages and work connection. Human asset the executives centers around acquiring, improvement, inspiration and insurance of HR in the organization.
Staff the board centers around better assembling and fulfill initiates. Human asset the board centers around progress, culture, creation and volunteers inclusion.
Staff the executives is worried about faculty administrator. Human asset the board is worried about all degree of administrators from upper to under.
Work force the executives is a customary work. Human asset the executives is an arranged work
To accomplish M1 utilize powerful judgment to separate among work force and human asset the board
Under faculty the board, laborers are given less getting ready and headway openings. Under human asset the executives, delegates are given all the really planning and headway openings.
In faculty the executives, decisions are made by the top administration as per the standards and control of the affiliation. In human asset the executives, decisions are made everything considered ensuing to thinking about laborer’s collaboration, power, decentralization, zeroed in climate, etc.
Staff the board focuses on extended creation and satisfied agents. Human asset the executives focuses on practicality, culture, productivity and specialist’s help.
Faculty the executives is concerned with work force boss. Human asset the executives is stressed with all degree of bosses beginning to end.
Faculty the board is an ordinary limit. Human asset the executives is an imperative limit
Clarify the capacity of the human asset the executives in adding to hierarchical purposes.
1. Enrollment and choice
Enlistment is the way toward enchanting, screening, and choosing potential and qualified candidates considering objective rules for a particular occupation. The goal of this strategy is to pull in the certified up-and-comers and to encourage the unsuitable contender to select themselves.
Prior to starting the method of selection, the associations should execute authentic staffing plans and should survey the amount of laborers they will require. Measuring of the agents should depend on the yearly spending plan of the affiliation and momentary and long stretch goals of the associatio