Trading Times

Preliminary Round - 1

Contact:
jij Akhilesh Agarwal - +91-98319-21133 || Rounak Agarwal - +91-80171-73729
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Instructions
o This document consists of a case study with 5 distinct questions. These questions
are to be solved using general principles of stocks and derivatives trading.
o The questions provide sufficient information for devising a solution. However, if any
assumption is made while solving the questions, the same needs to be explicitly
stated with the solution.
o The teams must submit their solutions by 11:59 PM, 11th January 2017 by mailing it
to the following email address: bc.tradingtimes17@gmail.com.
o Kindly note that each team must generate a team code consisting of 4-6 alphabets,
a special character, and 2 numerical digits, in the stated order.
o The solution should be in Portable Document Format (PDF). The name of the
solution document and the subject of the mail should be named as
TradingTimes_TeamCode (For example: TradingTimes_Trade!16).
o The body of the mail should contain the name and contact details of all the
participants.
o The shortlisted teams shall be sent an email. Hence, please check your registered
email address at regular intervals.
o The list of the shortlisted teams shall also be uploaded on the Trading Times Facebook Event page.
o The decision of the organisers shall be binding on all the participants.
o The nomenclature used in the case is the same as used in the real world. However,
the situations and events are hypothetical.
Happy Solving!

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Stanlib Capital is an American multinational financial services corporation headquartered in

New York City. Stanlib Capital operates in 29 countries and has more than 1,500 offices and
72,000 employees. According to the World Bank Annual Report 2016, the company had
$2.628 trillion worth of assets under management (AUM).
Aryan Sood, Head of Indian Operations of Stanlib Capital, has recruited Ayesha as an intern
he would mentor this winter. His high profile clientele and well-established contacts give
him an edge over other financial corporations. Like all other investors, Mr. Aryan Sood has
also faced ups and downs in life. Despite all the distressed phases, Mr. Sood is not afraid to
trust his instincts. Thats what his clients trust him for.
Ayesha is a 2nd year student at SRCC. She is studying economics and is looking to explore
careers in finance. To fathom the depth of the field and analyse the opportunities in store
for her, she seeks to broaden her horizon through this internship.
Mr. Sood has been advising and guiding Ayesha to understand the functioning of the capital
markets and the derivatives market. He supervises her performance through daily
assignments and reviews her weekly progress. At the end of her internship, Mr. Aryan will
personally evaluate her performance for a full-time position in Stanlib Capital, India.
Her first set of assignments for this week are as follows:
1. Mr. Aryan Sood believes there are three important factors that determine the
expected return for a common stock. He uses the following factor betas and factor
risk premiums.
Factor
1
2
3

Factor Beta
0.7
1.2
-0.1

Factor Risk Premium

1.5%
4.0%
5.0%

If the risk free rate is 3%, what is the expected return for this stock using the
Arbitrage Pricing Theory (APT) model?
2. Caspers Inc. is a multinational corporation that provides business consulting,
information technology and outsourcing services. It is among the top 5 IT services
company in India. Its market capitalisation is approximately ` 2,90,000 Cr. The
announcement of the companys 3rd quarter results is due in the evening. The
companys projected yearly net profit at the beginning of the year was ` 13,000 Cr.
which is 17% higher than last years actual returns. The company has already
reported net profits of ` 3,789 Cr. and ` 4,578 Cr. in the 1st and the 2nd quarters itself,

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respectively, which is 64.4% of its net profit target for the year already achieved. You
need to advise Stanlibs client, Blackrock Securities, to initiate a trade based on the
anticipation of this quarterly result. What would you do? Briefly explain the rationale
behind your decision.
3. Following are a few recent developments in the foreign exchange markets. You need
to analyse the impact of the following news pieces on the given currency pair
Citing concerns of low growth, the Bank of England pursues quantitative easing.
EUR/GBP

Zimbabwe, after facing one of the biggest challenges of hyperinflation, has

decided to use the Yuan as its national currency. ZAR/CNY

Due to the 7th Pay Commission, the demand for Maruti Suzuki cars has spiked
this season. INR/JPY

Persistence in rising inflation over the past 2 quarters has forced the Fed to hike
rates in the US. USD/SGD
4. DuPont Finance Inc., Stanlibs top client, has a $1 billion growth portfolio with a beta
of 1.4, relative to NASDAQ Composite. The NASDAQ Composite futures are trading at
$5,450.00 and the contract size is 20. He would like to hedge his exposure to the
market risk over the next few months as he expects higher volatility in the market.
Identify whether a long or short hedge is appropriate. Also, determine the number of
NASDAQ Composite futures contracts needed to implement the hedge.
5. The following is a weekly chart of Solar City Corporation. The company is a leading
renewable and alternate energy producer based in the US. You need to observe the
following chart and comment on the pattern formation that has taken place. Also,
analyse whether it would be a good time to go long/short on the stock.

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