A manager controlling a broadly based portfolio of UK large shares wishes to hedge against a possible fall in the market. It is October and the portfolio stands at £30m with the FTSE 100 Index at 5020. The March futures price is 5035 (£10 per index point). Required 

(a) Describe a way in which the manager could hedge against a falling market. Show the number of derivatives. 

(b) What are the profits/losses if the FTSE 100 Index moves to 4000 or 6000 in March? 

(c) Draw a profit/loss diagram for the strategy. Show the value of the underlying portfolio at different index levels, the value of the derivative and the combined value of the underlying and the derivative.