- Explain the risk faced by the fund manager, and how futures could be used to hedge it. (15 marks)
- Would June or September futures be most appropriate and why? (5 marks)
- How many futures should be bought or sold to hedge the position? Show your calculation. Use the appropriate tools to show an equation in your word processor. (5 marks)
- Confirm your result using the OSA (Option Scenario Analysis) function on Bloomberg. Show a screen cast of the function 32) Hedge position. What is the equivalent to the hedge ratio in the OSA function? (10 marks)
- Show and explain, using the functions 33) Scenario Matrix and 35) Multi-Asset Scenario, the effect of your hedge on the profit and loss of your portfolio in different market scenarios. Show screen casts of your results. (10 marks)
- Making reference to academic literature, discuss the use and limitations of the hedge ratio. (20 marks)
- Are there any additional risks and considerations to be taken into account when using futures to hedge a portfolio in a situation like this? Discuss, making reference to academic literature. (20 marks)
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