A hedge fund has compiled a list of French firms that it believes will outperform the overall French stock market by 7 percent over the year. It also has compiled a list of French firms that it believes will underperform the overall French stock market by 7 percent. The hedge fund wants to invest in a market-neutral long/short strategy on the French stock market. It has a capital of 25 million for this purpose. However, it would like to retain a cash cushion of 1 million for unforeseen events. The hedge fund can borrow shares from a primary broker with a cash margin deposit equal to 20 percent of the value of the shares. No additional costs are charged to borrow the shares.

a) outline the strategy for the hedge fund