CMA Final · Strategic Financial Management · Risks in Financial Market
A mutual fund holds an equity portfolio worth ₹10 crore with a beta of 1.2 against the Nifty. It wants to bring portfolio beta to zero using Nifty futures. One Nifty futures contract has a value of ₹6,00,000 (index 24,000 × lot size 25). Which position is required?
The fund should short 200 Nifty futures contracts. The beta-adjusted exposure is 1.2 times ₹10 crore, or ₹12 crore, and dividing by the ₹6,00,000 contract value gives 200. A short position offsets market movements and brings portfolio beta to zero.
- AShort 200 contractsCorrect
- BShort 167 contracts
- CLong 200 contracts
- DShort 240 contracts
Explanation
To neutralise market risk, short futures worth beta × portfolio value = 1.2 × ₹10 crore = ₹12 crore. Contracts = 12,00,00,000 / 6,00,000 = 200. Short 167 ignores beta. Long 200 would double the market exposure rather than hedge it.
Did you get it right without looking?
One question tells you little. A timed set on Risks in Financial Market shows your real accuracy, how long you take and where you lose marks.
More Risks in Financial Market questions
- A portfolio manager at a Mumbai fund house holds a portfolio worth Rs 50 crore. The daily standard deviation of returns is 1.5%. Assuming no…
- A firm holds a bond portfolio worth Rs 200 crore with modified duration of 4.5. If yields rise by 40 basis points across the curve, what is …
- A stock has a beta of 1.2 and its idiosyncratic variance is 0.0036. Market variance is 0.0100. What is the proportion of its total variance …
- Arjun holds a portfolio worth Rs 10,00,00,000 whose daily returns have a standard deviation of 1% and are normally distributed. Using a 99% …
- A bond portfolio manager holds a bond with a modified duration of 4.5 and a market value of Rs 2,00,00,000. Yields are expected to rise by 4…
- Kaveri Ltd has a Rs 80 crore one-day 99% VaR of Rs 4 crore for a bond book, using z = 2.33 at 99%. Assuming returns are independent and iden…