Joanna, a head of investment manager holds a portfolio with a current value of RM20 million....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Joanna, a head of investment manager holds a portfolio with a current value of RM20 million. Joanna fear that the market might be heading for a short-term volatility and wishes to enter the KLCI futures market for two months. She is analyzing all the information before she decides. Today, early of April 2023 Kuala Lumpur Composite Index (KLCI) is 1433 and the KLCI futures for spot month, the next month and the next two months is 843, 842 and 839.50 respectively. While the dividend yield and the risk-free rate are 2.75% and 3.9% and the beta is 1.2. Joanna is in dilemma either she should enter as a hedger or arbitrageur in the market as the best strategy to protect the risk arising in the cash market. She found currently the market is mismatch and she decides to get your advice. Required: a) As a CFO in the firm, what would you advise to Joanna based on the market perspective? b) Assume in June 2023, the KLCI futures price has shown as 875, 920 and 995 for spot month, one month and two months. And both indices converged at last day of June 2023. Proof and propose to Joanna that your strategy that could benefited to the firm. What kind of arbitrage for the above strategy? Discuss. Joanna, a head of investment manager holds a portfolio with a current value of RM20 million. Joanna fear that the market might be heading for a short-term volatility and wishes to enter the KLCI futures market for two months. She is analyzing all the information before she decides. Today, early of April 2023 Kuala Lumpur Composite Index (KLCI) is 1433 and the KLCI futures for spot month, the next month and the next two months is 843, 842 and 839.50 respectively. While the dividend yield and the risk-free rate are 2.75% and 3.9% and the beta is 1.2. Joanna is in dilemma either she should enter as a hedger or arbitrageur in the market as the best strategy to protect the risk arising in the cash market. She found currently the market is mismatch and she decides to get your advice. Required: a) As a CFO in the firm, what would you advise to Joanna based on the market perspective? b) Assume in June 2023, the KLCI futures price has shown as 875, 920 and 995 for spot month, one month and two months. And both indices converged at last day of June 2023. Proof and propose to Joanna that your strategy that could benefited to the firm. What kind of arbitrage for the above strategy? Discuss.
Expert Answer:
Answer rating: 100% (QA)
a Given the current market conditions and Joannas concerns about shortterm volatility I would advise ... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
A balloon is inflated with helium to 1.42 atm at 25.3C. When you go outside with the balloon the temperature decreases to 12.6C. What is the final pressure of the helium in the balloon when outside?...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Activity-based costing systems should be used instead of traditional costing systems if ________. A. indirect production costs are a large percentage of production costs B. different products consume...
-
Loggins Department Store uses a perpetual inventory system. Data for product E2-D2 include the following purchases. On June l, Loggins sold 25 units, and on August 27, 30 more units. Compute the cost...
-
The decision theoretic approach to set estimation can be quite useful (see Exercise 9.56) but it can also give some unsettling results, showing the need for thoughtful implementation. Consider again...
-
What is meant by the term fact pleading?
-
Stella Company issues $3 million, 10-year, 9% bonds at 96, with interest payable on July 1 and January 1. The straight-line method is used to amortize bond discount. (a) Prepare the journal entry to...
-
16. Calculate the present value of the annuity. (Round your answer to the nearest cent.)$11,000 annually at 5% for 10 years.
-
a) How would you construct the static roll center for the front of a car from the lateral ICs of both left front (LF) and right front (RF) wheels and their position on the car? b) How is the roll...
-
Critical Thinking . Toward the end of the article, Phelps compares the educational loan system to the U.S. health system: "In this sense, the system functions the same way our current healthcare...
-
. Without finding the entire inverse matrix, find only the (2,1)-entry of A-1 using the 1 2 - 1 1 [Hint: adj(A)=CT, where C is 0 4 7 adjoint formula for the inverse if A = 3 the matrix of cofactors...
-
what ways does the globalization of capitalism reshape patterns of social stratification, including the emergence of transnational elites and the exacerbation of global inequalities ?
-
. Construct ER diagram for company having following details. - Company organized into DEPARTMENT. Each department has unique name and a particular employee who manages the department. Start date for...
-
-1 3 b Given 3 matrices, A= a 2 14 -2 2,B=3 c5 and C= 8 11-f 21 26 13 34 -1 2 d If C AB, find the value of a,b,c,d,eand f.
-
Here is the full income statement for your first year of business: Sales $ 1 0 0 , 0 0 0 Cost of Goods Sold $ 7 0 , 0 0 0 Gross Profit $ 3 0 , 0 0 0 Selling & Administrative Expenses $ 1 6 , 0 0 0...
-
What conclusion can you reach by analyzing the graph in figure 1, what does it indicate or what does it predict? Use chemical rationale to justify your answer. 70 60 50 40 30 10 15 20 25 30 35...
-
DEPARTMENT DATA EMPLOYEE DATA EmployeeNumber FirstName Mary Rosalie Richard George Alan 3 4 5 7 8 9 855555ES 12 13 14 15 16 17 Create the database tables in SQL or ACCESS: 18 19 20 PROJECT DATA Ken...
-
It is also common to compare firms on their price-to-ebitda ratios. What are the merits of using this measure? What are the dangers?
-
Xerox Corporation is a long-established company whose very name has been lent to the process of copying documents. The firm develops copying technology through an extensive research program and...
-
Explain the danger posed by special-purpose entities.
-
Assume that an account has the following characteristics: Number of items in the account-300 Recorded amount- \(\$ 600,000\) Sample size-100 Required: a. If the sample mean is \(\$ 1,800\) and mean...
-
You desire to estimate the amount of the inventory of your client. Draper. Inc. You satisfied yourself earlier as to the inventory quantities. During the audit of the pricing and extension of the...
-
The following data for a substantive test using sampling are available: Population recorded amount- \(\$ 200,000\) Tolerable misstatement \(\$ 10,000\) Number of items in the population-200 Risk of...
Study smarter with the SolutionInn App