A funds manager 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 S&P/ASX All Ordinaries Share Price Index futures contracts at 23.55.Three months later,when the manager closes out the position,the contract is trading at 24.10.Calculate the profit or loss position of the futures transactions.
A) $5500 loss
B) $24 100 profit
C) $137 500 loss
D) $550 000 profit

Question

Quizplus · Accepted Answer

The loss on the futures transactions is calculated by the difference in the contract prices multiplied by the number of contracts and the index multiplier. The index moved from 23.55 to 24.10, a difference of 0.55. Assuming the standard contract size for S&P/ASX All Ordinaries Share Price Index futures is 1,000 (a common multiplier for index futures), the calculation is 100 contracts * 0.55 * 1,000 = $55,000 loss, not $137,500. However, without the specific multiplier provided in the question, the exact calculation might vary, but based on the provided options and typical contract sizes, none of the options accurately reflect this calculation. There seems to be a misunderstanding in the calculation or the options provided.

A Funds Manager Manages a Diversified Australian Share Portfolio,but Is