Hedge for mnm insurance using a futures contract

Assignment Help Business Economics
Reference no: EM133274290

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 R250 000 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 R200 000.

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 R300 000.

True or False?

Reference no: EM133274290

Questions Cloud

Distinguish between a steady state and a transition state : How do you distinguish between a steady state and a transition state? Why is it important to achieve a steady state before changing phases during research
What sort of strategy could you implement to improve : In this reflection you are to "connect" the concept of price elasticity of demand to a real-world problem. You are meant to pick a good/service and answer the f
Describe the role of cognition in stress : Describe the role of cognition in stress and stress management. Give examples of at least three types of cognitive distortion and describe why someone would use
Identify the type of market they cater to : 1. Give detailed story and their background 2. Identify the type of market they cater to. Discuss.
Hedge for mnm insurance using a futures contract : 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
How will you establish reliability and validity : Suppose you are developing your own test. To standardize, you have to establish its reliability and validility. How will you establish reliability and validity
What is the market structure in which qantas : The Australian airline industry is largely dominated by Qantas, Virgin Blue and Jetstar with a market share of about 90%. Answer the questions below.
Why can the cognitive-behavioral model be appealing : Why can the cognitive-behavioral model be appealing? How can you compare and contrast the approaches to treatment that each model might suggest
Economic responsible investing : Jordan is an ERI (Economic Responsible Investing) for Kuwait investments, financial institutions, banks, entrepreneurs, joint projects, integrated projects, etc

Reviews

Write a Review

Business Economics Questions & Answers

  Economics assignment

This document contains various important questions and their appropriate answers in the subject field of Economics.

  Demand and supply curves

Economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of the allocation is to maximize the attainment of the ends.

  Long-run perfectly competitive equilibrium for the firm

Evaluate Government intervene and correct this situation?(a) Explain the concept of a concentration ratio. A rise in the price of magarine Explain the impact of external costs and external benefits on resource allocation long-run perfectly c..

  Supply and demand diagrams

Explain each of the following using supply and demand diagrams,  With the use of a graph, explain how these two programs affect cigarette consumption and the price of cigarettes.

  Case study: fisher-price toys

The case study of the Fisher-Price Toys, Inc., a popular case in basic economics and management from the prestigious Harvard Business School.

  Draw the production possibility curve

Draw the production possibility curve and a. Define consumer surplus and producer surplus.

  Tax revenue

The Australian government administers two programs that affect the market for cigarettes

  Maximize total welfare

How many tickets to sell to maximize total welfare.

  Difference between the cv and the ev

The change in consumer surplus (?CS) is not "theoretically" justifiable like the CV and EV but it continues to be the most widely used measure of consumer welfare change. Explain how this can be reconciled

  Depict von neumann-morgenstern utility index u in a diagram

Depict the von Neumann-Morgenstern utility index u in a diagram

  What is the market solution

What is the market solution (market price and quantity) and What is the total surplus of the society under the market solution

  Calculate gross national product and net national product

Calculate gross national product and net national product

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd