Question 1. * The Black-Schotes and Mertow method of moutelling derivative prices was first introduced in 1973. by the Nobel Prize winners Black Scholes (1973) and Merton (1973).atter which the model is humed. Essentially the Black Schules-Merto (BSM) approach shows how the price of an option contract can be determined by using a simple formula of the underlying asset's price and des volatility, the exercise price - price of the underlying asset that the contract stipulates - time to maturity of the contract and the risk-free interest rate preunited in the marker Critically assess the merits and shortcomings of the Black Scholes Pricing Modelce the Stock Exchange of Mauritius (15 Marks) (ii) Discuss the other relevant alternatives of the BSM approach on the Stock Market of Mauritius (18 marke Question 2. "Exchange rute risk management is an integral part in aer fir decisions and foreign currency exposure (Allayannis, Biturig and Weston, 2007). Currency reuk hedging strategies entail eliminating or reducing this risk and require understanding of both the ways that the exchange rate risk could affect the operations of economic agents and techniques to deal wis the consequent risk implications (Barton, Shonkirand Walker.2002) Currency Forwards is the obligations to buy or sell in under gasst af some grew price at some point in the future Discuss the extent to how Currency forwards can be employed to hedge currency risk management on the stock exchange market of Mauritius (25 marks) Question 1. * The Black Scholes and Merton method of medelling derivative prices was first introduced in 1973, by the Nobel Prize winners Black Scholes (1973) and Alerton (1973), ander which the model is named. Essentially the Black-Schules-Merton (BSM) approach shows how to price of an option contract can be determined by desing a simple formula of the underlying asset's price and des volatitisy, she exercise price - price of the undertring attestat she contract stipulates time to maturity of the contract and the risk free interest rate premalled in the marker Critically assess the merits and shortcomings of the Black Scholes Pricing Model on the Stock Exchange of Mauritius (15 Mark) c) Discuss the other relevant alternatives of the BSM approach on the Stock Marie of Mauritius (10 marks Question 2. Exchange rate risk management is an integral part in coery firms decisamer about foreign currency exposure (Alloyannis, Thrie, and Weston, 2001). Currency risk Aedpine strateples entail eliminating or reducing this risk and require anderstanding of both the way that the exchange rate risk could affect the operations of economic agents and techniques to deal with the consequent risk implicationer (Barton, Shentic and Walker.2002) Currency Forwards is the obligation to buy or sell in underlying asset at some given price at some point in the future Discuss the extent to how Currency forwands can be employed hedge cuncacy risk management on the stock exchange market of Mauritius (25 marks
