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2. [16 Marks] [Futures Contracts] Answer all parts (a) to (c) of this question. Adam, a speculator, is convinced that the stock market will fall
2. [16 Marks] [Futures Contracts] Answer all parts (a) to (c) of this question. Adam, a speculator, is convinced that the stock market will fall significantly in the forthcoming months. The current market index (1 November) level for the FTSE-100 is 6200. Explain his strategy on the FTSE-100 Futures market to exploit this expected market fall. The FTSE futures value F: =6000 and has a December maturity. Assume he has funds for 5 futures contracts and he faces no transactions costs. Note the FTSE-100 Index futures has a value of f10 per full index point and at maturity the index futures is equal to the spot index. (a) What is Adam's profit or loss on his futures position if the FTSE-100 spot index rose to 6400 in December? (b) What is Adam's profit or loss on his futures position if the FTSE-100 spot index fell to 5800 in December? (c) If Adam had an index portfolio of f62000 on 1 November, what is his combined profit/loss on his futures and spot positions if the spot index falls to 5800 in December
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