NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
A PMS portfolio holds stocks worth Rs 2,00,00,000 with a beta of 1.0 relative to the Nifty. The manager fully hedges by shorting Nifty futures when the Nifty futures price is 20,000 and the lot size is 50. How many lots must be sold?
The manager must sell 20 lots. One Nifty futures lot is worth Rs 10,00,000 (20,000 times 50), and dividing the Rs 2 crore portfolio by this value gives 20 lots for a beta of one.
- A20 lotsCorrect
- B40 lots
- C10 lots
- D200 lots
Explanation
Value of one lot = 20,000 x 50 = Rs 10,00,000. Lots needed = 2,00,00,000 / 10,00,000 = 20 lots at beta 1. Selling 40 lots would over-hedge by doubling, and 10 lots would hedge only half.
Did you get it right without looking?
One question tells you little. A timed set on Derivatives shows your real accuracy, how long you take and where you lose marks.
More Derivatives questions
- An investor buys one Nifty call option with a strike of 22,000 and pays a premium of Rs 150 per unit. The lot size is 50 units. At expiry Ni…
- A PMS manager holds a diversified equity portfolio and expects the market to fall in the short term, but does not want to sell the holdings.…
- A portfolio manager holds a diversified portfolio of large-cap stocks worth Rs 5 crore and fears a short-term market fall, but does not want…
- Under SEBI's rules for portfolio managers, which statement about use of derivatives for a discretionary PMS client is generally correct?
- In an exchange-traded futures contract, which feature mainly protects the clearing corporation against default by a counterparty?
- In an exchange-traded equity option contract, which party has an obligation to perform if the buyer chooses to exercise the option?