Forward/Future Contract Case (Hedging using Future and Forward)

Currently May 21, 2021. You are the finance director of a securities company on the Indonesia Stock Exchange. One investor wants to enter into a contract with your securities company to sell the JCI worth IDR 1 trillion on September 25, 2021.

Data:

Spot JCI = 5,773

Indonesian risk free interest rate = 3.50% p.a.

Indonesian lending rate = 10.00% p.a.

The JCI Continuous Dividend Yield is 1.5% p.a.

Question:

1. Will you accept this contract?

2. What is your strategy for fulfilling contracts for your clients?

3. Calculate the fair value of the JCI forward on September 25, 2021?

4. What is your prediction for the JCI level on September 25 2021?

5. How do the predictions you make influence your business decisions?