《Exam FRM June 2011》.doc

School of Business and Economics EXAM Course : Financial Risk Management Code : EBC4056 Date : 6 June 2011 Time : 9.00 – 12.00 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: According to University Policy 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) State four differences between a forward contract and a futures contract. What is in the OTC market meant with the term “collateralizing the trades”. Answer: Question 2 (2 points) A bond portfolio has a value of €6,792,000. The risk management department has determined the partial durations to this portfolio which have been summarized in the following table: The risk management department has worked out two alternative solutions, referred to as scenario 1 (A rotation of the yield curve) and 2 (A parallel shift of the yield curve) and summarized in the following table: term 1 2 3 4 5 7 10 zero-coupon rate 4.