Question

1.You work at ABC Stock Brokers Sdn Bhd as a remisier. A wealthy foreign client who is bullish about Malaysian stocks wants to establish an exposure in the local equity market. The FBM KLCI is now at 900 points. At-the-money index put and call options are being quoted at 6 points and 8 points, respectively. Assuming the client is willing to invest up to RM 1 million,

(a)State three ways by which the client can get exposure to Malaysian equities that he wants. (2 marks)

(b)State the size of the exposure, the approximate transaction cost and outline the strategy for each of the three alternatives.(3 marks)