Discuss the different products of derivatives

Assignment Help Other Subject

Reference no: EM132892833 , Length: word count:2000

GAC6011 Capital Market and Derivatives - Gulf College

Assessment Task

This assessment requires the students to complete two tasks equivalent to 2000 words.

Task 1: 1400 words equivalent

The term "Derivative" indicates that it has no independent value, i.e., its value is entirely derived from the value of the underlying asset. Range of derivatives products derive their values from the performance of five underlying asset classes: equity, fixed-income instrument, commodity, foreign currency and credit event. Critically discuss the different products of derivatives.

The student is required to:

1. Write an introduction with a proper overview on derivative market. (200 words)
2. Critically discuss the participants and economic functions of derivative market. (500 words)
3. Critically discuss the different products of derivatives (500 words)
4. Proper conclusion giving summary and your opinion. (200 words)

Task 2: 600 words equivalent

Suppose that the current spot exchange rate is €1.6/£ and the one-year forward exchange rate is €1.75/£. The one-year interest rate is 4.2% in Euros and 3.8% in Pounds. You can borrow at most €2,000,000 or the equivalent Pound amount, i.e., £1,250,000, at the current spot exchange rate.
The student is required to:

1- Write a proper introduction on the risk on foreign exchange.

2- Calculate how you can realise a guaranteed profit from covered interest arbitrage. Assume that you are a Euro-based investor. Also determine the size of the arbitrage profit.

3- Suppose you are a Pound-based investor. Calculate the covered arbitrage process and determine the Pound profit amount.
References: List of references as per Harvard Referencing style for both tasks.

Attachment:- Capital Market and Derivatives.rar

Reference no: EM132892833

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