Question

A funds manager, Prudential Investments Limited, manages a diversified Australian share portfolio, but is concerned that stock prices in the market will fall over the next three months. The manager decides to hedge the risk by selling 100 All Ordinaries Share Price Index futures contracts at 2355. Three months later when the manager closes out the position the contract is trading at 2410. Calculate the profit or loss position of the futures transactions.

Answer 1

CALCULATION OF THE PROFIT OR LOSS ON THE FUTURE TRANSACTION
Selling price of the cobtracts =	$             2,355
Less: Buying price or Close position price =	$             2,410
Net Loss per contract =	$                 -55
Number of Contracts =	100	Contracts
Total Loss = No. of Contracts X Loss per contract =
Total Loss = - $ 55 X $ 100 = - $ 5,500
Answer = Loss = - $ 5,500