Contents
Introduction 3- Factors behind the severe China stock market decline 3
- Evaluation of the effectiveness of different hedging techniques 4
- Forward market 4
- Future market 6
- Option market 7
- Swap market 8
- Relevant hedging strategy to improve Chinese stock market performance 8
- Impact of Chinese Yuan’s inclusions in IMF’s basket of currencies 9
- Conclusion 11
- References 12
Description
This paper answers the following questions -
a. Discuss the factors behind the severe China stock market decline from 12 June 2015 to 26 August 2015. [5 marks]
b. Describe the hedging techniques, and evaluate their effectiveness, that portfolio managers can use to hedge the stock market decline in part a. [15 marks]
c. Discuss the impact of the Chinese Yuan’s inclusion in IMF’s basket of currencies (on30 November 2015) on the longer term risk management approach of Chinese firms.[10 marks]
