CMFAS M9A Risk Considerations of Structured Products question: number of contracts to short

CMFAS M9ARisk Considerations of Structured Products

A manager wants to hedge a S$1,700,000 portfolio (beta 0.9 to the STI) using STI futures priced at 2,500 points with a S$10 multiplier. The correct number of contracts to short is:

A 61 contracts
B 68 contracts
C 76 contracts
D 62 contracts

Show the answer and explanation

Answer: D. 62 contracts

Price coverage per contract = 2,500 x S$10 = S$25,000. Hedge ratio = (S$1,700,000 / S$25,000) x 0.9 = 68 x 0.9 = 61.2. Contracts are indivisible and rounded UP to ensure full coverage, so he sells 62.

Common mistake

Option A (61) rounds 61.2 down; a partial contract cannot be sold, so the figure is rounded up to 62 to avoid leaving the position under-hedged.

Practise more M9A Risk Considerations of Structured Products questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: Risk Considerations of Structured Products CMFAS M9Apractice questions & mock exams

Related CMFAS M9A questions

A manager hedges a specific stock portfolio by selling index futures. A fundamental limitation of this hedge is that An investor holds a structured product that fully returns principal in US dollars at maturity. If the USD has depreciated against the SGD since purchase, on maturity the investor An option to buy a share at S$10 has an intrinsic value of S$5 when the share trades at S$15. If the share price rises 20% to S$18, the option's intrinsic value rises to S$8 — a 60% increase. This demonstrates that

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practising →

Original study material mapped to the public CMFAS M9A syllabus. Unofficial, not endorsed by MAS or SCI. Verify figures and rules against current guidance before relying on them.