Financial forward contract and financial future contract

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Reference no: EM132922727

QUESTION FOUR

(a) Evaluate five differences between a financial forward contract and a financial future contract.

(b) Following the economic conditions in your country, insurance companies have revised their yearly premiums charged for the policy holders as shown in the table below:

Company Market Shares Premium last year Revised premium

Sh. Sh.

A 3% 1019 1019

J 7% 861 ?

B 21% 852 795

K 47% 938 887

C 5% 731 731

Company B intends to revise its premium charged to customers due to the competition in the industry. Required:

(i) Determine the key competitor company in the insurance industry, citing your reasons.

(ii) Using the parity based pricing principle, compute the revised price that company B should charge as premium to its policy holders.

(iii) Explain four advantages of using the parity pricing approach in pricing financial services.

Reference no: EM132922727

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