MNM Insurance anticipates that its losses will increase in the following year and as the risk manager you would want to hedge against this risk. Currently the index stands at a loss level of 70%. This amounts to an index level of 0.3 or R300 000 per contract. If the loss ratio declines as anticipated to a level of 75%, it will equate to a level of 0.25 which amount to R250000 per contract. Losses of R3 Billion are expected for the 10 companies using the pool. 75% of these losses will be reported at the end of the quarter. Total premiums for the companies is R40 Billion. Assume that MNM Insurance's earned premium is R200000.

The best way a hedge for MNM Insurance using a futures contract in light of the information supplied above is to go short on a futures contract meaning you sell short the index (sell an index that you do not have at hand) at R300000.

True or False?