Assume you are a US company and have invested in a diversified portfolio of shares representing

the S&P500 index, worth US$2,000,000. Given the current environment due to COVID-19, you

fear that your portfolio will be adversely affected in the next three months and wishes to hedge to

reduce its risk. Based on this scenario, please answer the following questions:

(a) Please explain ONE financial risk faced by the US company in their portfolio of shares given

the above scenario, why you consider this as a risk, and whether you would consider hedging.

Please discuss in your answer the outlook for the underlying variable and cite evidence of an

adverse or favourable direction. NB: reference list will not be part of the word count.

(b) For the risk you have mentioned above in part (a) please provide the hedging strategy you will

use and explain why you have chosen this strategy above all others

(c) Irrespective of your answer above, assume you are using an option 'spread' strategy to hedge

your risk. Please use real data from the CME group and provide the net premium cost of the

hedge, the strike prices used, and the number of contracts required. Please show all

calculations.