Assignment 1 (Treasury and Risk Management - Master Degree) Please answer the following questions...

Question

Assignment 1 (Treasury and Risk Management - Master Degree)    Please answer the following questions briefly and succinctly (max 400 words). This assignment is to be submitted at the first seminar. 20% of the overall marks are awarded for this assignment.    **Clarified by the lecturer. Important to note. **  1. The 400-word limit applies to the whole assignment, not individual questions.  2. For assignment 1 as it is a structured assessment format, the following requirements under Module Assessment Components: “For each question, there should be a brief introduction, the body of the answer and a conclusion section.” does not apply.    Question 1  Why are futures and options contracts generically referred to as “derivatives”?    Question 2  What is the difference between a European and an American option, as far as the buyer and the writer are concerned?    Question 3  You are a speculator and you think stock prices will increase. Should you buy a call or a put option?    Question 4  Under what circumstances would you make a profit at maturity from a long position in a futures contract on ‘live hogs’?    Question 5  Who might find a futures contract on (the price of) orange juice, useful?
	
Document Preview: Assignment 1 (Treasury and Risk Management)Please answer the following questions briefly and succinctly (max 400 words). This assignment is to be submitted at the first seminar. 20% of the overall marks are awarded for this assignment. **Clarified by the lecturer. Important to note. **1.       The 400-word limit applies to the whole assignment, not individual questions. 2.       For assignment 1 as it is a structured assessment format, the following requirements under Module Assessment Components: “For each question, there should be a brief introduction, the body of the answer and a conclusion section.” does not apply.Question 1 Why are futures and options contracts generically referred to as “derivatives”? Question 2 What is the difference between a European and an American option, as far as the buyer and the writer are concerned? Question 3 You are a speculator and you think stock prices will increase. Should you buy a call or a put option? Question 4 Under what circumstances would you make a profit at maturity from a long position in a futures contract on ‘live hogs’? Question 5 Who might find a futures contract on (the price of) orange juice, useful?

Robert · Accepted Answer

Question 1 
Why are futures and options contracts generically referred to as “derivatives”? 
Answer 1 
Derivatives are the financial instruments whose value is derived from its underlying assets. As 
the value of underlying assets changes, the value of derivatives also changes. Future and Options 
are derivatives. In future contract, the underlying assets may be commodity, currency, interest 
rate, stock or Index. In the same way, Options have also underlying assets like as of future. The 
only difference is, Option is a right to buy or sell the underlying assets at a fixed price on fixed 
date while future is an obligation.
Question 2 
What is the difference between a European and an American option, as far as the buyer 
and the writer are concerned?

Assignment 1 (Treasury and Risk Management - Master Degree) Please answer the following questions briefly and succinctly (max 400 words). This assignment is to be submitted at the first seminar. 20%...

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