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CMA Final · Strategic Financial Management · Forwards and Futures

A portfolio manager holds equity worth ₹5 crore with a beta of 1.2 and wants to reduce beta to 0.6 using Nifty futures. Nifty futures trade at 20,000 with a lot size of 50. How many contracts should be sold?

Sell 30 contracts. Each contract has a notional value of ₹10 lakh (20,000 × 50), so the portfolio equals 50 contracts. Reducing beta by 0.6 (from 1.2 to 0.6) requires 0.6 × 50 = 30 contracts sold. Selling 60 would take beta to zero.

  1. A30Correct
  2. B25
  3. C60
  4. D15

Explanation

Contracts = (β target − β current) × Portfolio value / (Futures price × lot size) = (0.6−1.2) × 5,00,00,000 / (20,000×50) = −0.6 × 50 = −30, so sell 30. Selling 60 would remove the entire 1.2 beta (hedge to zero). Selling 25 would use a wrong beta difference of 0.5.

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