Consider a U.S. portfolio manager holding a portfolio of French stocks. The market value of the portfolio

Question:

Consider a U.S. manager holding a of French stocks. The market value of the is €20 million, with a beta of 1.2 relative to the CAC index. In November, the spot value of the CAC index is 4,000, and the price of a futures contract on the CAC index for December delivery is 4,000. The yield, euro interest rates, and dollar interest rates are all equal to 4 percent (fiat yield curves), a. The manager fears a drop in the French stock market (but not the euro). The size of CAC index futures contracts is €10 times the CAC index. There are futures contracts quoted with December delivery. How many contracts should he buy or sell to hedge the French stock market risk?
b). Puts on the CAC index with December expiration and a of 4,000 sell for 50. Assume the standard contract size for the index options is €10 times the CAC index. How many puts should he buy or sell to insure the Compare the results of this insurance with the hedge suggested previously. Assume that the CAC index in December is equal to 3,800, 4,000, and 4,200, successively.
c. Suppose the manager fears a depreciation of the euro relative to the U.S. dollar. Will the previously mentioned strategies protect against this depreciation? Strike Price
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