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It is 30 Sept, you noticed the following spot market quotations. 3-month KLIBOR = 5.25% 6-month KLIBOR = 6.50% 3-month KLIBOR futures = 91.00 (i)

It is 30 Sept, you noticed the following spot market quotations.

3-month KLIBOR = 5.25%

6-month KLIBOR = 6.50%

3-month KLIBOR futures = 91.00

(i) Calculate the mispricing.

(ii) Disclose the arbitrage strategy.

(iii) Assuming the 3-month KLIBOR rate on 24 Dec increases by 2% to 7.25%, show the profit/loss you would make per contract.

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