QUESTIONS 25 THROUGH 30 RELATE TO RISK MANAGEMENT APPLICATION OF DERIV...

2. WPA is a consultancy firm managing its own defined benefit pension plan. In light of the plan’s strong overfunded position, Donna Marshall, the plan’s investment officer, has expressed an interest in international equities. After extensive research, Jose drafts a proposal to Marshall. Proposal: I strongly recommend purchasing at-the-money calls and puts on Russian stocks. Currently the Russian market is steady. According to my forecasts all that can change if the government announces a restrictive monetary policy. Although such a policy change is presently unanticipated by investors, I strongly believe the policy will be implemented increasing market volatility beyond expectations.