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O m An investor purchases about 4000 troy ounces of gold every 6 months He is concerned that
price of gold per troy ounce will go from its current price from Rs 20,000 to Rs 2O,000 per
ounces before his next purchase in 6 months If 6 months gold futures are currently selling for
Rs 20,500 per troy ounces, what should he do to reduce his price risk? Each gold futures
contract is in units of O00 troy ounces

Ans: Since he price increases he should go long on futures

2 m A farmer in Punjab expects to harvest 20,000 bushels of wheat in late July On O0 June, the price
of wheat is Rs O60 per bushel The farmer is worried as he suspects that price will fall below Rs
O60 before his july delivery date He can hedge his position by selling July wheat futures The
July wheat futurevprice is Rs O57 per bushel The farmer sold the july wheat futures When July
end approached, the price had fallen to Rs O50 per bushel What is the value of the hedged
position?
(Ans : Rs O57)
(Source FMIMP803)
3 m Jhavery Brothers generally buys O,000 troy ounces of gold every quarter The firm is anticipating
that the price of gold will rise to Rs 450 per iunce from the current level of Rs 405 perounce
before its quarterly purchase The price of 3 mnth gold future is Rs 4O5 per ounce What should
the firm do? If the price after 3 months rises to Rs 440, what are he consequences for Jhavery
Brothers?
(Ans : Rs 4O5)
(Source FMIMP803)

4 m
old is currently selling 340 an ounce The price is lightly to fluctuate It could increase to Rs
360 or could decrease to Rs 320 an ounce after 3 months A gold mine company will supply
3000 ounces in the market after 3 months The company is considering hedging its risk It has
two alternatives available It can enter a future contract to deliver gold after 3 months at a
future price of rs 342 Alternatively, the company can buy 3 months put option at an exercise
price of Rs 340 an ounce at a premium of Rs 3 per ounce What should the company do? What
will be the consequences if the company does not hedge?
(Source FMIMP803)

5 m In the beginning of December 2004, Sunil, a broker on BSE is bullish about Sensex The January
future Sensex is at 5,400 Suppose the contract size is Rs 5000 times the index Sunil buys one
contract for Rs 2, 70,000 (5,400 x 5,000) By the beginning of January Sensex index rises to
5,500 What should Sunil do?
(Source FMIMP803)
6 m On January O5, X bought a January Nifty futures contract that cost him Rs 5,38,000 For this he
had to pay an initial margin of Rs 43,040 to his broker Each Nifty future contract is for the
delivery 200 Nifties On January 25, the index closed at 2,720 How much profit/Loss did he
make
(Ans: Rs 6000)
7 m A person sold a January Nifty futures contract for Rs 2, 69, 000, on January O5 For this he had
pay an initial margin of Rs





O m An investor enters into futures (short) contract to sell January cotton for Rs 50 per kg on the
commodity exchange The size of contract is 5000 kg Initial margin is Rs 40,000 and
maintenance margin is Rs 30,000 What price change will lead to margin call to investor?
(Ans: Rs 52)
(Source FDSL
55)
2 m Suppose that you enter into a short contract to sell Aug gold for Rs 520 per gm on exchange
The size of contract is O0 kg The initial margin is Rs 5, 00,000 and the maintenance margin is Rs
3, 00,000 What change in the future price will lead to a margin call? What happen if you do not
meet the margin call?
(Ans: Rs 540)
(Source SAPMVKB978)
3 m A speculator predicts a price increase in the gold futures market from current future price of Rs
5000 per O0 gram The market lot is O00 gram Speculator buys one lot of futures
old of Rs
(5000 x O0) = Rs 50,000 Assume that margin is O0% What amount of margin money, is
required, if prices of gold increase by 20%? What will be profit to speculator?
(Ans: Rs 5000 & Rs O0,000)
(Source FDSL
56)
4 m A company enters into a short futures contract to sell O5,000 tonnes of wheat for Rs 6000 per
tonne The initial margin is Rs O crore and the maintenance margin is Rs 50 lakh What price
change would lead to margin call? Under what circumstances could Rs 25 lakh be withdrawn
from the margin account?
(Source SAPMVKB979)
5 m An investor predicts a price increase in the silver futures market from current future price of Rs
8000 per kg The market lot is O0 kg He buys one lot of futures of Rs (8000 x O0) = Rs 80,000
Assume that margin is 20% What amount of margin money, is required, if prices of gold
increase by 20% and if it is decreased by O0%? What will be profit/loss to investor?
{Ans: Rs O6000, Rs O6000, Rs (8000)}
(Source FDSL
57)
6 m On December O5 ABC Ltd established a long position in 200 shares of TISCO on January O at a
futures price Rs 600 per share Initial margin for contract is Rs 30,000 and maintenance margin
 is Rs 20,000 Draw a table showing margin and marking to market for ABC on Ost Jan with the
following information:
Prices 600 550 650 600 605 590 580 600 620
630 640 660 690
(Source FDSL
55)

× 

8 m A Company has a $O0 million portfolio with beta of O 2 It would like to use future contract to
hedge its risk The index is currently standing at 270 and each contract is for delivery of $500
times the index What is the hedge that minimizes risk? What should the company do if its
wants to reduce the beta of portfolio to 0 6?
(Ans: 59 7 contracts)
(Source SAPMVKB978)
9m