It is now early May, and the portfolio manager is expecting funds of RM2 million in September which will be added to his current portfolio. Meanwhile, the share market prices are going uptrend. The manager decides to hedge against the rise in the share market by buying KLCI futures to lock in the favourable price.

The September contract is chosen because the time coincides with the receipt of the anticipated funds. The September contract is currently trading at 980.

We assume that the market continues with its uptrend throughout the following three months. Assume also the portfolio manager holds the contract until it expires on the last business day of September where it closes at 1002.

Required:

a. Determine the number of contracts required to hedge the exposure.

b. Determine the amount the futures contract value if the portfolio manager purchases at the September contract price.

c. Determine the profit that the manager makes from his transaction.