FACULTY OF BUSINESS & INFORMATION SCIENCE
MIDTERM
Student ID (in Figures) :
Course Code & Name
: BA307 STRATEGIC FINANCIAL MANAGEMENT
Semester
: September – December 2021
Lecturer
: DR. MOHD ROMZEE IBRAHIM
Duration
: 1.5 Hours
INSTRUCTIONS TO CANDIDATES
ANSWER ALL QUESTIONS.
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Test paper will be posted on MS TEAMS link 15 minutes before the schedule.
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Students are required to convert all files to PDF format for uploading.
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Students are required to save the file using student’s ID follows by the name. Eg;
1001540559ANDY LOW CHUN KIT
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Completed paper must be uploaded to: https://forms.gle/KdDTmDvUTy3S1LYf9
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The submission link will be closed 15 minutes after the session is completed.
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ANSWER ALL QUESTIONS
1. The derivatives market is the financial market for derivatives, financial instruments like
future contract, options or swaps, which are derived from other forms of assets.
a. What is derivatives? How is it different from stocks and bonds? (4 Marks)
Derivatives is a term that refers to a certain type of financial instrument that may be
purchased and traded. This sort of transaction’s rate of return is calculated depending on
the performance of other financial elements. Assets (commodities, stocks, and bonds),
interest rates, currency rates, and other indices are only a few examples (stock index,
consumer price index, and weather index). The rate of return and return time of a
derivative are determined by the performance of these factors. Futures, options, CFDs,
and swaps are the most common derivatives. These financial derivatives can be
purchased and traded over the counter or on exchanges. Stocks signify a share of a
company’s ownership. You become an owner, and if the stock produces dividends, you
may get them. Debt is money you owe to a firm, government, or individual. You are a
creditor, and as such, you are entitled to interest payments.
b. The evolution of derivatives instruments has meant that each new derivative was an
improvement on its predecessor. State the operational advantage(s) of
i. Futures over Forwards and
Future contracts will be offered with contracts that are traded on an organized
exchange, but forward contracts will not be offered with contracts that are traded on
an organized exchange. Next, future contracts also have the option of being marked
to market and settled at any time during market hours, whereas forward contracts