Show the net valuation effect of the hedging strategy

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Reference no: EM131948704

A funds manager currently manages a diversified Australian share portfolio valued at $250 million. The manager decides to use the S&P/ASX 200 Index futures contract to manage an exposure to a forecast decline in share prices. The S&P/ASX 200 Index is currently at 5500. In three months’ time the S&P/ASX 200 is at 5150.

a) Today: set up a hedging strategy to manage the risk exposure.

b) In three months’ time: close out the open position

c) Show the net valuation effect of the hedging strategy

Reference no: EM131948704

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