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An investment portfolio of 1,200,000 mirrors the DAX Index. It is estimated that there will be a large decline in the market prices of the
- An investment portfolio of 1,200,000 mirrors the DAX Index. It is estimated that there will be a large decline in the market prices of the investment portfolio over the next 3 months. The trading information on the index futures is currently listed as below:
Contract specification (DAX Index Futures) | |
Price | 15,982 |
Value of 1 Point | 25 |
Value of contract | 399,550 |
Initial margin | 29,801 |
Assume you are a fund manager, and you are required to:
- Establish hedging strategy to against the value of the investment portfolio at risk exposure, using DAX Index Futures. (5 marks)
- Calculate the leverage ratio and total margin deposit required to trade these futures contracts and discuss the power of leverage in trading futures.
(10 marks)
- You have hedged the investment portfolio using DAX Index futures. Assume that the market decline by 10%, calculate the outcome of the hedging and discuss the effectiveness of the hedging. (10 marks)
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Step: 1
Hedging Strategy To hedge against the value of the investment portfolio at risk exposure the fund manager can use DAX Index Futures The goal of hedgin...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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