Exam 3: Hedging Strategies Using Futures

A company has a $36 million portfolio with a beta of 1.2.The futures price for a contract on an index is 900.Futures contracts on $250 times the index can be traded. -What trade is necessary to reduce beta to 0.9?

A company has a $36 million portfolio with a beta of 1.2.The futures price for a contract on an index is 900.Futures contracts on $250 times the index can be traded. -What trade is necessary to increase beta to 1.8?

Suppose that the standard deviation of monthly changes in the price of commodity A is $2.The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A)is $3.The correlation between the futures price and the commodity price is 0.9.What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

Which of the following best describes "stack and roll"?

A company due to pay a certain amount of a foreign currency in the future decides to hedge with futures contracts.Which of the following best describes the advantage of hedging?

Which of the following is true?

Futures contracts trade with every month as a delivery month.A company is hedging the purchase of the underlying asset on June 15.Which futures contract should it use?

On March 1 a commodity's spot price is $60 and its August futures price is $59.On July 1 the spot price is $64 and the August futures price is $63.50.A company entered into futures contracts on March 1 to hedge its purchase of the commodity on July 1.It closed out its position on July 1.What is the effective price (after taking account of hedging)paid by the company?

Which of the following is necessary for tailing a hedge?

A company will buy 1000 units of a certain commodity in one year.It decides to hedge 80% of its exposure using futures contracts.The spot price and the futures price are currently $100 and $90,respectively.If the spot price and the futures price in one year turn out to be $112 and $110,respectively.What is the average price paid for the commodity?

Which of the following best describes the capital asset pricing model?

A silver mining company has used futures markets to hedge the price it will receive for everything it will produce over the next 5 years.Which of the following is true?

Which of the following is true?

Which of the following is true?

The basis is defined as spot minus futures.A trader is hedging the sale of an asset with a short futures position.The basis increases unexpectedly.Which of the following is true?

Which of the following describes tailing the hedge?

On March 1 the price of a commodity is $1,000 and the December futures price is $1,015.On November 1 the price is $980 and the December futures price is $981.A producer of the commodity entered into a December futures contracts on March 1 to hedge the sale of the commodity on November 1.It closed out its position on November 1.What is the effective price (after taking account of hedging)received by the company for the commodity?

Which of the following increases basis risk?

Which of the following is a reason for hedging a portfolio with an index futures?

Which of the following does NOT describe beta?