1. What is meant by financial engineering? What is the role of derivative instruments in financial engineering?
2. Differentiate between On Balance Sheet versus Off Balance Sheet hedging methods. Where do derivatives fit in?
3. Define what is meant by basis. State 3 situations that could result in non-zero basis at maturity.
4. Define basis risk. State three instances in hedging where basis risk would be present.
5. What is the convergence property? What is it that convergence must occur at maturity?
6. State three benefits of transacting in stock index futures over stock market.