1. A finance manager of a large corporation was informed that the firm would require to borrow one millions funds in three months time. Current interest rates are based on the three-month KLIBOR rate of 4% per annum. He expects interest rate to increase during these periods, he decided to lock in the current interest rate. He can do so by:

a. selling 3-month KLIBOR futures contract.

b. buying 3-month KLIBOR futures contract.

c. buying and selling corresponding 3-month futures contracts.

d. selling 3-month KLIBOR spot contract.

2. You have $5 millions to invest. You have the following information on money market instruments and Bursa Malaysia Derivatives FKB3 as follows:

Money Market and Bursa Malaysia Derivatives (FKB3) information
3-month KLIBOR	8% (90 days till 24 September)
6-month KLIBOR	9% (180 days till 23 December)
3-month KLIBOR futures	93.5 (maturing 23 September)

If the interest rate went up by 2% on 23 September, how much is the arbitrage profit/loss?

a. $56,250

b. $43,750

c. $12,500

d. $31,250

3. Which of the following is NOT the drawback of forward contract?

a. Price negotiation might be dominated by one party only.

b. Uncertainty of the asset's value in the future.

c. Counter-party in the contract might default.

d. Trader needs to find a counter-party with the opposite needs.