A potential downturn in the share market can be overcome by:
A) taking a buy position on a contract for SPI futures and then closing out the contract if the market begins to rise.
B) taking out a contract SPI futures and agreeing to a sell position. The contract should be closed out if the market begins to rise.
C) entering into a forward exchange rate contract and specifying a specific date to purchase currency at a set rate.
D) hedging by agreeing to deliver goods at a specific date in the future at a predetermined price.

Question

Quizplus · Accepted Answer

B) Taking out a contract SPI (Share Price Index) futures and agreeing to a sell position is a strategy to hedge against a potential downturn in the share market. By doing so, an investor can lock in a price to sell their shares in the future. If the market begins to rise, closing out the contract allows the investor to benefit from the rising market while having had protection in place against a downturn.

A Potential Downturn in the Share Market Can Be Overcome