《Exam FRM July 2010》.doc

School of Business and Economics EXAM Course : Risk Management Code : EBC4056 Date : 7 July 2010 Location : Tennishal Meerssen Electronic communications devices are not allowed – put them in your bag or on the floor, not in your pocket! (Otherwise this will be reported as possible fraud). This exam consists of: # 8 Pages (Front page included) # 5 Questions You are allowed to make use of: A non-programmable calculator A two-sided signed-off formula sheet Norm: : A total of 10 points can be received. The maximum points per question are provided within parentheses at the header of the question. Publication of the results: within 15 workdays Procedure for objections: After exam inspection, by e-mail to the block coordinator within 5 working days. A response will be provided within 5 working days afterwards. In case of disagreement, procedure towards exam committee to be pursued by student. Particulars: Both calculation of the result and the final answer are important. Please provide both. In case you miss information, clearly state what information you are missing and state what assumption you make to answer the question. Be to-the-point. Inclusion of irrelevant statements will be treated as (partially) wrong. All answers should be written on the exam itself. Use both sides of paper if necessary. Write clearly. Text that is considered difficult to read may be treated as (partially) wrong. A look-up table is available for the normal distribution in the appendix at the end of this exam. Question 1 (2 points) An airline expects to purchase 4.8 million gallons of jet fuel in one month’s time. Because there is no futures contract on jet fuel it decides to use the futures contraction heating oil that trades on the New York Merchantile Exchange. The correlation between monthly changes in the price of jet fuel and monthly changes in heating oil futures is 0.9. The variance of monthly changes in the heating oil futures price per gallon is 0.024 and the