NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
Mr. Vikram Shah has a portfolio worth Rs 50,00,000 with a beta of 1.2 against the Nifty. He wants to fully hedge market risk using Nifty futures. The Nifty futures price is 20,000 and the lot size is 50. Approximately how many contracts should he sell?
He should sell 6 Nifty futures contracts. The beta-adjusted exposure is Rs 60 lakh (Rs 50 lakh times 1.2) and each contract is worth Rs 10 lakh (20,000 times 50), so 60 lakh divided by 10 lakh gives 6 contracts.
- A5
- B6Correct
- C10
- D12
Explanation
Contract value = 20,000 x 50 = Rs 10,00,000. Beta-adjusted exposure = 50,00,000 x 1.2 = Rs 60,00,000. Contracts = 60,00,000 / 10,00,000 = 6. Ignoring beta gives 5, a missed adjustment.
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