CMA Final · Strategic Financial Management · Forwards and Futures
Sundaram Exports holds a portfolio worth ₹5,00,00,000 with a beta of 1.2 against Nifty. It wants to cut beta to 0.6 using Nifty futures priced at 20,000 with a lot size of 50. The number of contracts to be sold is:
Sell 30 contracts. The beta must fall by 0.6, so the hedge value is 0.6 x ₹5 crore = ₹3 crore. Each contract is worth ₹10 lakh (20,000 x 50), so 3 crore divided by 10 lakh gives 30 contracts.
- A30Correct
- B25
- C60
- D50
Explanation
Contract value = 20,000 x 50 = ₹10,00,000. Contracts = (1.2 - 0.6) x 5,00,00,000 / 10,00,000 = 0.6 x 50 = 30. Selling 60 would take beta to zero, and 25 uses wrongly the target beta alone.
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