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Answer the following problems.

problem 1) Define and distinguish between Systematic and Unsystematic Risk.

problem 2) Briefly prepare on 5 various types of financial risks.

problem 3) Compare Technical Analysis and Fundamental Analysis.

problem 4) Analyze the nature of the efficient markets hypothesis (EMH) and describe how the various forms of efficiency can be tested.

problem 5) Describe the implications of the EMH for users of the financial markets.

problem 6) prepare briefly on The Arbitrage Pricing Theory (APT) and its implementations.

problem 7) The Arbitrage Pricing Theory (APT) has some strength and weaknesses although it is widely used by financial analyst. Briefly prepare on the above statement (giving 3 arguments each).

problem 8) prepare down themajor differences between forwards and futures contracts and name three futures exchanges.

problem 9) A US based Corporation has ordered merchandise costing SFr 625,000 from a Swiss firm. Payment must be made in December. At the time of the order, the dollar price of Swiss francs was $0.715/SFr. To protect itself against adverse changes in the exchange rate, the company wants to hedge using call options. The option premium for December call options with strike price of $0.70/SFr is $0.0105/SFr. The size of the option contact is SFr 62,500.

(i) Assume the spot price of Swiss francs at expiration date in December is $0.72. What would be the total dollar cost of the options hedge? Show all your workings.

(ii) Assume the spot price in December is $0.67/SFr. What is the total cost to the company of paying for the merchandise?

(iii) “The use of call options can set a maximum cost of the merchandise, but not a minimum cost.” Do you agree?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M96402

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