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Stock Futures Hedge Calculation

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Questions and Answers

What is the gain on the futures position when the stock price rose to Rs.521.20?

Rs.95,850 (correct)

Rs.72,500

Rs.99,300

Rs.86,400

What is the net cost of shares when the stock price declined to Rs.390 by 20th June?

Cost of buying shares in cash market multiplied by the number of shares

Cost of buying shares in cash market minus the gain on futures position

Just the cost of buying shares in cash market

Cost of buying shares in cash market plus the loss incurred on futures position (correct)

What happens when an investor takes a long position in a futures contract?

Is exposed to unlimited risks

Requires immediate settlement

Guarantees a profit regardless of market movements

Locks in a price for a planned purchase at a future date (correct)

If an investor makes a loss on their futures position, what is the impact on the net cost of shares?

Increases the net cost of shares Signup and view all the answers

How does a long position in a futures contract help an investor manage price risk?

By allowing to lock in a price for a planned purchase at a future date Signup and view all the answers

What is the purpose of taking a long hedge using stock futures in this scenario?

To hedge against the risk of an increase in stock price Signup and view all the answers

Why does the individual plan to use bank deposit funds to purchase shares on June 20, 2023?

Insufficient funds are available on May 10, 2023 Signup and view all the answers

What does it mean to 'square up your long position' in the futures contract?

Closing out the futures contract before its expiration Signup and view all the answers

If the stock price declined to Rs.480 by June 20, 2023, what would be the individual's total outlay on purchasing the shares?

$7,25,000 Signup and view all the answers

What is the significance of choosing a futures contract expiring on June 29, 2023?

It aligns with the maturity date of the bank deposit Signup and view all the answers