Assessment Policy of the University - Types of Instruments and Real Options

Instructions

This assessment was designed in terms of the Assessment Policy of the University and for that reason the assessment must be completed by you, the student, and must be your own
work. You are not allowed to copy from other students or people to complete the assessment. Any deviation from this principle may be subjected to the UNISA Disciplinary Code for students. For that reason, a signed declaration must be included in the front page of the assessment.

Format of the assessment

All the questions must be answered. If the assessment consists of different documents, the documents must be combined into one document. The document must be uploaded in PDF on myUnisa.

Declaration of own work

You must complete the declaration to the effect that the assignment is your own work and that all the sources used or quoted have been indicated and acknowledged by means of complete references.

Question 1

a. Explain the types and characteristics of the following instruments:

? Options

? Futures

? Forwards

? Swaps

? Double trigger instruments

? Triple trigger instrumentsb.

Illustrate and discuss the pay offs for the following instruments:

? Options

? Futures

? Forwards

? Swaps

? Double trigger instruments

? Triple trigger instrumentsc.

Describe the circumstances where the following instruments will be the most appropriate.

? Options

? Futures

? Forwards

? Swaps

? Double trigger instruments

? Triple trigger instruments

Question 2

Using real options in a risk environment can be beneficial if the enterprise need to make decisions on switching or acquiring multiple suppliers. Ericsson and Nokia had different
approaches in managing risk, which led to different outcomes during a business interruption event at a major supplier.

a. Explain the difference between risk and uncertainty.

b. Explain how real options how can be used to inform decisions to reduce the impact of exogenous shocks on the enterprise.