Question

In: Finance

what is the best way a portfolio manager can mitigate upcoming risks knowing that there is...

what is the best way a portfolio manager can mitigate upcoming risks knowing that there is a rapid change in the market to come in the next month?

Solutions

Expert Solution

The best way a portfolio manager can mitigate upcoming risk knowing that there is a rapid change in the market to come in the next month is to do hedging. Instead of shorting equivalent stock in cash or delivery of their portfolio, it is better and good decision to hedge the portfolio. As it is given that there is rapid change in the market means that market will going to correct for more than 10% and the cost involve in hedging for 1 year will be almost for 6% to 10% depending upon the type of assets to be hedge. Also, it should be first analyse where this rapid change in the market to come in next month what will be reason behind the correction whether micro factor or macro factor for the correction. If the reason behind is from macro factors then portfolio manager should sell some portion of their portfolio which is profitable and expect high impact by the macro /micro factors. And will hedge for remaining fund. THe macro factor will take long time to improve than micro factors. If the reason behind is from micro fatcor then partial hedging is sufficient for remain migitation of upcoming portfolio.


Related Solutions

What is one way to mitigate unsystematic risks?
 What is one way to mitigate unsystematic risks? Focus on one risk at a time. Diversify the investment portfolio. Transfer the risk to the internal auditors. Convert unsystematic risk into systematic risk. 、 How can a spontaneous asset account be distinguished from a nonspontaneous asset account? A nonspontaneous asset account balance typically decreases as sales increase.  A spontaneous asset account balance typically increases as sales increase.  A nonspontaneous asset account balance typically increases as sales increase.  A spontaneous asset account balance typically decreases as sales increase. Which account type correlates with...
Not only can hedging mitigate risks to the financial intermediary, but if done correctly, it is...
Not only can hedging mitigate risks to the financial intermediary, but if done correctly, it is costless.
What can be done to mitigate the health risks by populations who reside near chemical plants?
What can be done to mitigate the health risks by populations who reside near chemical plants?
In her new career in a portfolio management firm, a portfolio manager is learning the way...
In her new career in a portfolio management firm, a portfolio manager is learning the way to select securities for including in a portfolio. She has gathered recent data about the market and observed that the govt bond rate is 5.0 per cent and the risk premium for the market is 8.6 per cent. She has identified one security, TSR, with a beta value of 3.0 and an expected return of 22.2 per cent. She becomes confused after finding another...
What is the best way to regulate insurance and why?
What is the best way to regulate insurance and why?
WHAT IS THE BEST WAY TO MOTIVATE AN EMPLOYEE AND WHY?
WHAT IS THE BEST WAY TO MOTIVATE AN EMPLOYEE AND WHY?
What are some of the risks that Best Buy and the retail industry are facing in...
What are some of the risks that Best Buy and the retail industry are facing in the current economic and political environment? You need to research risks from current financial publications (e.g., Bloomberg, The Financial Times, The Economist). A current publication is no older than four years. Quote your source. Has the company addressed these risks? If yes, how? If not, what should they have done? Is another competitor on the market facing the same risks, and how did they...
1. What is the first-best policy instrument to mitigate climate change in the energy industry? How...
1. What is the first-best policy instrument to mitigate climate change in the energy industry? How does the performance of subsidies for renewable energy compare with the first-best policy? (Response can be in list form here.) 2. What is the first-best time-varying pricing solution and why? With the growth of renewable energy, what does it additionally aim to address?
What is the first-best policy instrument to mitigate climate change in the energy industry? How does...
What is the first-best policy instrument to mitigate climate change in the energy industry? How does the performance of subsidies for renewable energy compare with the first-best policy? (Response can be in list form here.)
1. How do loan portfolio risks differ from individual loan risks? What is the importance of...
1. How do loan portfolio risks differ from individual loan risks? What is the importance of concentration limits in managing the amount of NPLs (non-performing loans)? 2. Explain whether each of the statements below is True, False or Uncertain. Justify your answer. a. Compensating balances kept at the bank that has originated a loan help to reduce the adverse selection and moral hazard problems associated with lending. b. If the book value of the collateral is greater than or equal...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT