MN-3005: Financial Services 2023
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DEGREE EXAMINATIONS: JANUARY 2023
SCHOOL OF MANAGEMENT
MN-3005: Financial Services
Answer ALL Questions
Question 1
You have received an interview invite from UBS. In the technical interview session, you are required to use Excel to complete the questions shown below using the data provided in the separate Appendix (a Word file containing ‘Table1: Data for Question 1’). You need to show Excel workings in your answer.
(a) Calculate average weekly return and annualised return for “Amazon” shares. [4 marks]
(b) Use a line chart to visualise weekly prices of Amazon and 5-week (5 data points) simple moving averages of “Amazon” share prices in a line chart. [4 marks]
(c) Assume annual risk-free rate is 4%, calculate Alpha for “Amazon” . [4 marks]
(d) Calculate annual Sharper ratio and annual Calmer ratio for “Amazon” . [4 marks]
(e) Calculate Relative Strength Analysis ratios between “Amazon” and “S&P 500” and visualise them in a line chart. [4 marks]
(f) Comment the performance of “Amazon” during the period using the answers from (d) and (e). [5 marks]
[25 marks in total]
Question 2
(a) In the light of £65 billion contingent quantitative easing programme (buy long-dated gilts) announced by the Bank of England on 28th September 2022, critically discuss the Liability Driven Investment (LDI) strategy used by pension funds in the UK. [15 marks]
(b) Critically evaluate the consequences of “Financial Integration” . [10 marks]
[25 marks in total]
Question 3
(a) You are an informed trader from the UBS trading and sales department. You have been trading “ Piper” shares in an order-driven Multilateral Trading Facility in Europe. A snapshot of the limited order book of “Piper” is shown below:
|
bid |
size |
ask |
size |
|
200 |
5 |
202 |
5 |
|
199 |
5 |
203 |
4 |
|
198 |
7 |
204 |
7 |
|
197 |
6 |
205 |
3 |
|
196 |
5 |
206 |
5 |
|
195 |
5 |
207 |
6 |
If following orders (limited/market orders) are entered:
|
Sequence |
order type |
sell |
buy |
size |
Instruction associated with the order |
|
1 |
market buy |
|
|
5 |
|
|
2 |
limit |
200 |
|
10 |
- |
|
3 |
limit |
|
200 |
10 |
All or nothing (AON) |
|
4 |
limit |
|
200 |
7 |
- |
(i) Work out limit order book after each order coming in; And explain each order as to whether the order is taking the market or making the market and calculate the cost/price of filled order. [10 marks]
(ii) Compare the pre and post limited order book and provide your comments. [5 marks]
(b) Company Coinbase is looking to expand its business and considering to borrow from the market. Coinbase has been offered the rates per annum on a $500 million 5-year loan by its bank: (SOFR: Secured Overnight Financing Rate) shown below. With the quotes from its bank, the floating rate is cheaper given the SOFR is 3% at present. However, the board of Coinbase fears that the interest rate will continue rising and think it is too risky to have variable liability in a medium time horizon. They wish to borrow with a fixed liability. Company Biance on the other hand, is to seek opportunities by having floating exposure. The offered rates per annum on a $500 million 5-year loan for Biance are also shown below. Design a swap contract that can facilitate the objectives of Coinbase and Biance. The swap contract should be equally beneficial to both companies.
|
Fixed Rate |
Floating Rate |
|
|
Company Biance |
5.00% |
SOFR+1.50% |
|
Company Coinbase |
7.00% |
SOFR+2.00% |
[10 marks]
[25 marks in total]
Question 4
(a) Titan Co has borrowed a £50 million money market loan, where the interest rate is SOFR +500 basis points. It is currently 20th June 20X0 and SOFR is 3%. The interest rate is due to be reset for the following 3 months on the 1st September 20X0 (i.e. SOFR will be reset). The company wishes to hedge its exposure using short term interest rate futures contracts (STIRS). Assume the actual futures price on the 20th June 20X0 is 97.5. (SOFR: The Secured Overnight Financing Rate)
(i) Calculate and discuss the outcome of the hedge if basis is 0.1 and SOFR is 3.5% on the 1st September 20X0. [10 marks]
(ii) Discuss the impact of basis risk on hedge [5 marks]
(b) Discuss how Sustainable Financial Disclosure Regulation (SFDR) could impact on
the practice in the investment industry in Europe. [10 marks]
[25 marks in total]
2024-01-10