FIN200 - Principles of Finance Homework Assignment 2 Q1. Explain the difference between uncommitted and committed loan facilities provided by banks, and compare and contrast between three types of committed loan facilities. (200 words max) Q2. Describe and explain how investment banks assist companies wishing to raise finance. (200 words max ) Q3. A speculator is convinced that the stock market will fall significantly in the forthcoming months. The current market index (14 November) level is 7350 (FTSE 100). He is investigating a strategy to exploit this market fall by selling ten FTSE 100 Index futures on ICE with a March 2022 expiry, current price 7400 . Contract Unit for this futures is 10 per one FTSE 100 Index point. Assume: no transaction costs. Required: For the derivative (a) What would the profit (loss) be if the index rose to 7500 in March under the strategy? (b) What would the profit (loss) be if the index fell to 7150 in March under the strategy? Q4. A buyer of a futures contract on Gold bullion with an underlying value of 100,000 on 10 November is required to deliver an initial margin of 5 per cent to the clearing house. This margin must be maintained as each day the counterparties in the futures are marked to market. Required: (a) Display a table showing the variation margin required to be paid by this buyer and the accumulated profit/loss balance on her margin account in the eight days following the purchase of the future. (Assume that the maintenance margin is the same as the initial margin.) (b) Explain what is meant by 'gearing returns' with reference to this example. (Hint: gearing has the same meaning as leverage, note how the returns in the Gold Bullion are amplified in the futures contract and comment on it.) ( 75 words max) (c) Compare forwards and futures markets and explain the coexistence of these two. (100 words max) Q5. An investment manager is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return of each