This document contains 6 multiple choice questions related to hedging strategies using futures contracts. The questions cover concepts like perfect hedge, underhedge, overhedge and calculating profits/losses from hedged positions when the underlying assets and futures contracts change in value.

1. • Perfect/Complete hedge.
• Underhedged
• Overhedged.

2. 1. Beta of a portfolio vis-à-vis BSE Sensex is 1.5. One month futures contract on
Sensex is trading at 4500.Find the value of the portfolio, if the hedge is to be a
perfect one. (assume that holder of the portfolio enters into two contracts in
index future and lot size for each BSE Sensex futures contract is 50)
a. Rs. 100000
b. Rs. 200000
c. Rs. 300000
d. Rs. 400000
e. Rs. 500000

3. 2. A trader has Rs. 20000 , with which he can buy shares worth Rs. 20000/- on
the cash market with beta of 1.8. Another option he has is to buy one BSE
Sensex futures contract at a level of 4800, with lot size of 50.(?) If the market
goes up by 10%, what is the difference between the profits in the cash market
and in the futures market.
a. Rs. 15600.
b. Rs. 18800
c. Rs. 20400
d. Rs. 24200
e. Rs. 25800

4. 3. Beta of Cipla is 1.5, vis-à-vis BSE Sensex. An investor has a long position in
Cipla worth Rs. 2,00,000,coupled with a short Sensex position of Rs.200000.
Which of the following is true for the investor?
a. He has a partial hedge .
b. He has a complete hedge.
c. He is overhedged.

5. 4.An investor expects that the rupee will depreciate and hence the profit of
export oriented IT companies will go up. He is long on Infosys to the tune of Rs.
2 lakhs. The beta of Infosys is 1.35 vis-à-vis BSE Sensex. He wants to remove the
effect of market movements from his holding. How can he remove his Sensex
exposure?
a. Short Sensex futures Rs. 2.7 lakhs
b. Short Sensex futures Rs. 1.35 lakhs.
c. Short Sensex futures Rs. 2 Lakhs
d. Long Sensex futures Rs. 2.7 lakhs.

6. 5. X buys 1000 shares of HUL at Rs. 250 and obtains a complete hedge by
shorting one futures contract on the Sensex at 5000. The lot size is 50. Both his
positions are closed on the next day. HUL has gone down by 2% and Sensex has
gone up by 1%. What is the overall profit/loss to X?
a. Profit Rs. 7500.
b. Loss Rs. 7500.
c. Loss Rs. 2500.
d. Profit Rs. 2500.

7. 6.It 1st Sept. An investor has a portfolio worth Rs. 20 lakhs, which has a beta of
0.5 vis-à-vis Sensex. He needs funds on 1st November. He wants to totally
eliminate his market risk. What is the correct hedging strategy.
a. Buy futures worth Rs. 20 lakh for November expiry.
b. Short futures worth Rs. 10 lakhs for November expiry.
c. Short futures worth Rs 20 lakhs for November expiry.
d. He should not do anything and sell the portfolio in November.