Abhay bought 1000 shares of Panther Ltd. Panther has a beta 1.1 with the Sensex. Each Sensex contract is equal to 50 units. Panther now quotes at ₹ 100 and the Sensex futures is available at 4500 Index points. Required:

(i) How many futures contracts Abhay will take? Since Abhay is long on the spot market, therefore he has to go short in the futures market. Hence, Abhay has to sell Future of Sensex to hedge shares of Panther Ltd. Number of futures contracts to be sold = (Hedge ratio * units of spot position requiring hedging) / No. of units underlying contract Hedge ratio = Beta = 1.1 Units of spot position requiring hedging = 1000 shares No. of units underlying contract = 50 units (for Sensex contract) Number of contracts = (1.1 * 1000) / 50 = 1100 / 50 = 22 contracts