Question
James manages an aggressive 50 billion JPY Japanese small-cap portfolio that has a beta equal to 1.5 X the Japanese Nikkei 225 index.You are concerned
James manages an aggressive 50 billion JPY Japanese small-cap portfolio that has a beta equal to 1.5 X the Japanese Nikkei 225 index.You are concerned that the Japanese stock market is in for a decline and therefore want to hedge your portfolio.
The Nikkei 225 January futures are trading at average 23,300
The contract size is (500 JPY) X Nikkei 225 Index
1) How many contracts must you pay for the hedge to be effective (hint: consider the hedge ratio)?
2) Are you going to be long or short the contract (buy or sell the contract)?
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Fundamentals of Investing
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
12th edition
978-0133075403, 133075354, 9780133423938, 133075400, 013342393X, 978-0133075359
