An investor buys 500 shares of X Ltd. @ ₹210 per share in the cash market. In order to hedge, he sells 300 futures of X Ltd. @ ₹195 each. Next day, the share price and futures decline by 5% and 3% respectively. He closes
CS Professional · Financial, Treasury and Forex Management · PYQS · June 2019
An investor buys 500 shares of X Ltd. @ ₹210 per share in the cash market. In order to hedge, he sells 300 futures of X Ltd. @ ₹195 each. Next day, the share price and futures decline by 5% and 3% respectively. He closes his position next day by counter-transactions. Find out his profit or loss.
Answer & Explanation:
Answer 4(c) Cash market ₹ Buying of 500 shares @ ₹210 per share 1,05,000 Selling of 500 shares @ 5% decline = 500 (210-5%) 99,750 Loss in Cash market 5,250 Future Market ₹ Selling of 300 shares @ ₹195 per share 58,500 Buying of 300 shares @ 3% decline = 300 × (195-3%) 56,745 Profit in Future market 1,755 Net Loss = ₹5,250 - ₹1,755 = ₹3,495
Topics: Derivatives
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