Unit ko samjho · NISM Series XIII
Strategies Using Futures
24 questions is unit mein
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- An investor owns a diversified equity portfolio and fears a short-term market fall. Which futures direction is a basic hedge?
- An Indian exporter will receive dollars in two months and fears rupee appreciation. Which currency futures position is a basic hedge?
- An Indian importer must buy dollars in two months and fears rupee depreciation. Which futures position directly hedges that risk?
- Which statement best describes the goal of speculation using futures contracts?
- What is cash-and-carry arbitrage generally designed to exploit?
- A bond investor fears rising yields will lower bond prices. Which interest-rate futures direction is a typical price hedge?
- Which position is a long currency futures position?
- An equity portfolio is worth ₹50 lakh. One index futures contract has ₹10 lakh notional exposure. With beta 1, how many short contracts approximately hedge it?
- A portfolio worth ₹40 lakh has beta 1.5. Each index future represents ₹10 lakh. How many short contracts approximate a beta hedge?
- An exporter sells USD 10,000 in futures at ₹84 per dollar and closes at ₹82. What is the futures gain?
- An importer buys USD 5,000 futures at ₹83 and exits at ₹85. What is the futures gain, ignoring costs?
- When futures are overpriced versus the cost-of-carry value, what is the conventional cash-and-carry position?
- When futures are unusually cheap relative to fair value, which paired trade is called reverse cash-and-carry?
- Why can a currency hedge using futures still produce an imperfect offset?
- A trader buys a near-month currency future at ₹84 and sells a far-month future at ₹85. Near rises to ₹85 and far to ₹85.40. What is the gain per dollar?
- A fund holds large-cap shares and hedges with index futures. One stock has a major company-specific fall while the index is flat. Which exposure is least protected?
- A debt portfolio has ₹20 lakh interest-rate exposure. A suitable futures contract represents ₹5 lakh of comparable exposure. How many short contracts match the notional?
- What risk arises when a bond portfolio and its interest-rate futures hedge respond differently to curve movements?
- An exporter hedges a dollar receivable with short futures. The rupee weakens unexpectedly before payment. What is the likely hedge trade-off?
- An equity portfolio is ₹72 lakh with beta 1.25. Each index futures contract is ₹15 lakh. How many short contracts give an approximate beta hedge?
- Spot asset costs ₹1,000, three-month fair futures value is ₹1,020, and traded futures price is ₹1,035. Ignoring fees, what is cash-and-carry arbitrage profit per unit?
- An importer owes USD 20,000 and buys USD/INR futures at ₹84. At payment, spot is ₹87 and the future closes at ₹86.80. Ignoring costs, what is net rupee payment after hedge gain?
- A bond portfolio has modified duration 6 and value ₹30 lakh. Each futures contract has duration 5 and value ₹6 lakh. Approximately how many short futures hedge first-order duration risk?
- A trader buys 1,000 near-month dollar futures at ₹83 and sells 1,000 far-month futures at ₹84. At exit, prices are ₹83.60 and ₹84.20. What is the net rupee gain?
Zaroori ideas
Practice bank se · 1
An investor owns a diversified equity portfolio and fears a short-term market fall. Which futures direction is a basic hedge?
Selling suitable index futures can offset some losses when the underlying portfolio falls. Remember: A long equity portfolio can be hedged with short index futures.
Hint Common mistake: Choose hedge direction opposite to the exposure. Consider which position gains when markets fall.
XIII-051Practice bank se · 2
An Indian exporter will receive dollars in two months and fears rupee appreciation. Which currency futures position is a basic hedge?
Selling USD/INR futures can help offset a decline in the rupee value of future dollar receipts. Remember: Dollar receivables are naturally exposed to a weaker dollar.
Hint Common mistake: Remember whether the business receives or pays dollars. Think about the exporter receiving dollars later.
XIII-052Practice bank se · 3
An Indian importer must buy dollars in two months and fears rupee depreciation. Which futures position directly hedges that risk?
Buying USD/INR futures can offset a higher rupee cost of acquiring dollars later. Remember: Dollar payables can be hedged with long dollar exposure.
Hint Common mistake: Importers and exporters generally need opposite currency hedge directions. Identify what becomes more expensive for the importer.
XIII-053Practice bank se · 4
Which statement best describes the goal of speculation using futures contracts?
Speculation accepts directional market risk in pursuit of profit from price changes. Remember: Speculation deliberately assumes price risk.
Hint Common mistake: A directional trade is not necessarily a hedge. Focus on the motive behind the position.
XIII-054Practice bank se · 5
What is cash-and-carry arbitrage generally designed to exploit?
Cash-and-carry can exploit overpriced futures by buying spot exposure and selling futures where feasible. Remember: Cash-and-carry compares futures price with spot plus carry.
Hint Common mistake: Arbitrage profitability requires accounting for costs and execution. Compare observed futures price with fair carrying cost.
XIII-055Practice bank se · 6
A bond investor fears rising yields will lower bond prices. Which interest-rate futures direction is a typical price hedge?
Shorting suitable bond-price futures can offset losses on bond holdings when yields rise. Remember: Hedge a long bond position with opposite price exposure.
Hint Common mistake: Do not confuse hedging rising yields with betting on falling yields. Think about bond prices when yields rise.
XIII-056Practice bank se · 7
Which position is a long currency futures position?
A long currency futures position gains from an increase in the quoted currency futures rate. Remember: Long currency futures benefit from a higher quoted rate.
Hint Common mistake: Do not assume long means holding cash foreign currency today. Distinguish buying a futures contract from selling it.
XIII-057Practice bank se · 8
An equity portfolio is worth ₹50 lakh. One index futures contract has ₹10 lakh notional exposure. With beta 1, how many short contracts approximately hedge it?
Contracts = ₹50 lakh ÷ ₹10 lakh = 5 short futures contracts. Remember: Hedge quantity follows exposure and contract value.
Hint Common mistake: Do not ignore contract notional size. Match total market exposure to contract notional.
XIII-058Practice bank se · 9
A portfolio worth ₹40 lakh has beta 1.5. Each index future represents ₹10 lakh. How many short contracts approximate a beta hedge?
Required notional = ₹40 lakh × 1.5 = ₹60 lakh. Contracts = 60 ÷ 10 = 6 short contracts. Remember: Use beta-adjusted exposure for an index hedge.
Hint Common mistake: An index hedge of a high-beta portfolio needs more notional. First adjust portfolio exposure by its beta.
XIII-059Practice bank se · 10
An exporter sells USD 10,000 in futures at ₹84 per dollar and closes at ₹82. What is the futures gain?
Gain = (84 − 82) × 10,000 = ₹20,000. Remember: Short dollar futures gain when USD/INR declines.
Hint Common mistake: Keep dollar contract quantity separate from the quoted rate. For a short position, subtract the closing price from the entry price.
XIII-060Practice bank se · 11
An importer buys USD 5,000 futures at ₹83 and exits at ₹85. What is the futures gain, ignoring costs?
Long futures gain = (₹85 − ₹83) × USD 5,000 = ₹10,000. Remember: Long currency futures gain when their quote rises.
Hint Common mistake: Do not confuse gross notional with gain. Consider the difference between entry and exit dollar rates.
XIII-061Practice bank se · 12
When futures are overpriced versus the cost-of-carry value, what is the conventional cash-and-carry position?
Buying spot and selling overpriced futures seeks to lock the positive mispricing after costs. Remember: Cash-and-carry normally sells rich futures against spot holdings.
Hint Common mistake: Position direction determines whether the spread is captured. Construct opposite positions around the price discrepancy.
XIII-062Practice bank se · 13
When futures are unusually cheap relative to fair value, which paired trade is called reverse cash-and-carry?
Reverse cash-and-carry generally shorts or sells spot exposure and purchases underpriced futures where feasible. Remember: Reverse carry buys relatively cheap futures.
Hint Common mistake: Short-sale constraints can prevent a theoretical arbitrage. Reverse the usual cash-and-carry positions.
XIII-063Practice bank se · 14
Why can a currency hedge using futures still produce an imperfect offset?
Changes in basis, tenor or hedge size can leave currency exposure partly unhedged. Remember: Hedging effectiveness depends on price co-movement and size.
Hint Common mistake: A hedge is risk reduction, not guaranteed profit. Consider the difference between hedge and actual exposure.
XIII-064Practice bank se · 15
A trader buys a near-month currency future at ₹84 and sells a far-month future at ₹85. Near rises to ₹85 and far to ₹85.40. What is the gain per dollar?
Near long gains ₹1.00. Far short loses ₹0.40. Net gain = ₹0.60 per dollar. Remember: A calendar spread depends on changes in the relationship between expiries.
Hint Common mistake: Do not ignore the second leg of a spread. Calculate both legs of the calendar spread.
XIII-065Practice bank se · 16
A fund holds large-cap shares and hedges with index futures. One stock has a major company-specific fall while the index is flat. Which exposure is least protected?
An index futures hedge mainly offsets broad index movement and may not cover company-specific price shocks. Remember: Index hedges are weaker against idiosyncratic stock moves.
Hint Common mistake: Treating diversified market exposure and single-stock exposure as the same risk. Check whether the hedge tracks the individual stock.
XIII-066Practice bank se · 17
A debt portfolio has ₹20 lakh interest-rate exposure. A suitable futures contract represents ₹5 lakh of comparable exposure. How many short contracts match the notional?
Required short contracts = ₹20 lakh ÷ ₹5 lakh = 4. Remember: Notional hedging starts with exposure divided by contract value.
Hint Common mistake: Duration differences can require further adjustment. Assume the instrument sensitivities are otherwise comparable.
XIII-067Practice bank se · 18
What risk arises when a bond portfolio and its interest-rate futures hedge respond differently to curve movements?
Yield-curve spread risk can arise when yields at the portfolio's and futures' maturities do not move together. Remember: Yield moves at different maturities can diverge.
Hint Common mistake: Parallel-shift hedges do not cover every curve twist. Think about shifts at different maturities.
XIII-068Practice bank se · 19
An exporter hedges a dollar receivable with short futures. The rupee weakens unexpectedly before payment. What is the likely hedge trade-off?
A weaker rupee increases rupees obtained for the exporter's dollars, while the short USD/INR futures hedge tends to lose. Remember: A useful hedge can lose when the underlying exposure benefits.
Hint Common mistake: Judge the combined exposure, not the hedge leg alone. Offset cash-flow improvement against derivative movement.
XIII-069Practice bank se · 20
An equity portfolio is ₹72 lakh with beta 1.25. Each index futures contract is ₹15 lakh. How many short contracts give an approximate beta hedge?
Index-equivalent exposure = 72 × 1.25 = ₹90 lakh. Short contracts = 90 ÷ 15 = 6. Remember: Index futures hedge size depends on portfolio beta.
Hint Common mistake: Never round before accounting for beta. Calculate index-equivalent notional before contract count.
XIII-070Practice bank se · 21
Spot asset costs ₹1,000, three-month fair futures value is ₹1,020, and traded futures price is ₹1,035. Ignoring fees, what is cash-and-carry arbitrage profit per unit?
Profit = observed futures ₹1,035 − fair carry value ₹1,020 = ₹15 per unit, assuming convergence and feasible trading. Remember: Mispricing profit is the difference from fair carry value.
Hint Common mistake: Do not compare futures only with unfinanced spot cost. Compare traded futures with total financed spot cost.
XIII-071Practice bank se · 22
An importer owes USD 20,000 and buys USD/INR futures at ₹84. At payment, spot is ₹87 and the future closes at ₹86.80. Ignoring costs, what is net rupee payment after hedge gain?
Spot payment = 20,000 × 87 = ₹17,40,000. Futures gain = 20,000 × (86.80 − 84) = ₹56,000. Net = ₹16,84,000. Remember: A currency hedge can have residual basis difference.
Hint Common mistake: Hedged cost is not always exactly the original futures notional. Calculate the payment at spot, then subtract the futures gain.
XIII-072Practice bank se · 23
A bond portfolio has modified duration 6 and value ₹30 lakh. Each futures contract has duration 5 and value ₹6 lakh. Approximately how many short futures hedge first-order duration risk?
Portfolio duration exposure = 30 × 6 = 180 lakh-years. Per future = 6 × 5 = 30 lakh-years. Contracts = 180 ÷ 30 = 6. Remember: Duration hedge ratio uses value and sensitivity.
Hint Common mistake: Two same-notional assets can have different rate sensitivities. Match rupee duration rather than only market value.
XIII-073Practice bank se · 24
A trader buys 1,000 near-month dollar futures at ₹83 and sells 1,000 far-month futures at ₹84. At exit, prices are ₹83.60 and ₹84.20. What is the net rupee gain?
Near long = (83.60 − 83) × 1,000 = ₹600. Far short = (84 − 84.20) × 1,000 = −₹200. Net = ₹400. Remember: Calendar spreads depend on relative price movements.
Hint Common mistake: Never calculate only the profitable leg of a spread. Net the long and short leg changes.
XIII-074