NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
A PMS portfolio holds equity worth Rs 10 crore with a beta of 1.0 against the Nifty. The manager wants to hedge fully using Nifty futures with a contract value of Rs 20 lakh each. How many futures contracts should be sold?
The manager should sell 50 Nifty futures contracts. With a beta of 1, the hedge equals portfolio value divided by contract value, which is Rs 10 crore divided by Rs 20 lakh. That gives 50 contracts to offset market movements in the portfolio.
- A25
- B50Correct
- C100
- D10
Explanation
Number of contracts = portfolio value x beta / contract value = 10,00,00,000 / 20,00,000 = 50. Choosing 25 or 100 comes from miscalculating the crore-to-lakh conversion, and 10 uses the wrong units.
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