1. Read the passage below and answer the questions that follow:

The market portfolio is the portfolio held in different quantities by all investors. It must consist of all risky assets in proportion to their market capitalisation. The proportion of a particular investors portfolio consisting of the market portfolio will be determined by their risk return preferences.

This is one of the key results of the Capital Asset Pricing Model(CAPM).

Suppose that the Johannesburg Stock exchange (JSE) is a market of risky assets, which consists only of all JSE listed companies. Suppose that the JSE has only 12 million investors. Assume that investor 1 has 5% of their portfolio of risky assets in Zebra Ltd shares. (Assume Zebra Ltd is a company listed on the JSE).

Required:

	What percentage of the portfolio of investor 9 is invested in Zebra Ltd.s shares?	[1 mark]
	What percentage of the market portfolio is invested in Zebra Ltds shares?	[1 mark]
	What percentage of the JSE market capitalization is in Zebra Ltds shares?	[1mark]
	What constitutes investor 37s portfolio of risky assets?	[1mark]
	In what proportions should every investor in the scenario hold shares on the JSE?.	[1mark]

2. GUGU (Pty) Ltd, a South African manufacturing company, imports dates from Saudi Arabia required for manufacturing baby food. The manufactured baby food is sold in South Africa and is also exported to the European Union, China and India. The financial manager is considering using currency options to reduce the companys foreign currency transaction exposure.

Required:

Define and explain how a currency option works. How can GUGU (Pty) Ltd use currency options to minimise its foreign currency transaction exposure?	[5 marks]
Explain five methods (other than currency options) that GUGU (Pty) Ltd can also use to minimise its exposure to foreign currency transactions?	[5 marks]