Adam, a speculator is convinced that the stock market will fall significantly in the forthcoming months. The current market index (1 November) level for the FTSE-100 is 5100. Explain his strategy on the FTSE-100 Futures market to exploit this expected market fall. The FTSE futures value F,=5000 and has a December maturity. Assume he has funds for 5 futures contracts and he faces no transactions costs. Note the FTSE-100 Index futures has a value of £10 per index point and at maturity the index futures is equal to the spot index. full (a) What is Adam's profit or loss on his futures position if the FTSE-100 spot index rose to 5200 in December? (b) What is Adam's profit or loss on his futures position if the FTSE-100 spot index fell to 4800 in December? (c) If Adam had a spot index portfolio of £51000 on 1 November, what is his combined profit/loss on his futures and spot positions if the spot index falls to 4800 in December?

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