Question 9 a and b
Chapter S Interest Rate Futures: The 3-Month KLIBOR Futures Contract151 3-month KLIBOR 6-month KLIBOR 3-month KLIBOR futures92.50 a. Proof that arbitrage is possible. b. Outline the appropriate arbitrage strategy. c. Assuming you can invest/risk up to RM 10 million, determine the profit you would make if the 7.2% -8.5% 3-month KLIBOR is at 90% on futures maturity. 9. You are the CFO of Gombak Enterprises Berhad (GEB) Your company has just received a shipment of raw materials. Payment on these goods of RM 30 million will be due in 90 days. Your banker Maybank, has agreed to provide you a 3-month RM 30 million loan at KLIBOR + 2%. The spot 3-month KLIBOR is now quoted at 6%, while the KLIBOR futures is priced at 9300. a. What risk is the company exposed to? State 9 three different Instruments that could be used by GEB to hedge the risk Using KLIBOR futures, proof mathematically, that regardless of whether the interest rate goes up or down by 2% over the next 90 days, GEB's cost is locked-in. b. 2 10. It is 24 March, you notice the following spot market quotations. 3-month KLIBOR 6-month KLIBOR 6.75% 8% The 3-month KLIBOR futures is priced at 93.00 (maturing 24 June). a. Is there mispricing? b. How would you arbitrage? c Assuming the 3-month KLIBOR rate on 24 June is 9%, show the profit you would make per contract 2 month loan The financier will Chapter S Interest Rate Futures: The 3-Month KLIBOR Futures Contract151 3-month KLIBOR 6-month KLIBOR 3-month KLIBOR futures92.50 a. Proof that arbitrage is possible. b. Outline the appropriate arbitrage strategy. c. Assuming you can invest/risk up to RM 10 million, determine the profit you would make if the 7.2% -8.5% 3-month KLIBOR is at 90% on futures maturity. 9. You are the CFO of Gombak Enterprises Berhad (GEB) Your company has just received a shipment of raw materials. Payment on these goods of RM 30 million will be due in 90 days. Your banker Maybank, has agreed to provide you a 3-month RM 30 million loan at KLIBOR + 2%. The spot 3-month KLIBOR is now quoted at 6%, while the KLIBOR futures is priced at 9300. a. What risk is the company exposed to? State 9 three different Instruments that could be used by GEB to hedge the risk Using KLIBOR futures, proof mathematically, that regardless of whether the interest rate goes up or down by 2% over the next 90 days, GEB's cost is locked-in. b. 2 10. It is 24 March, you notice the following spot market quotations. 3-month KLIBOR 6-month KLIBOR 6.75% 8% The 3-month KLIBOR futures is priced at 93.00 (maturing 24 June). a. Is there mispricing? b. How would you arbitrage? c Assuming the 3-month KLIBOR rate on 24 June is 9%, show the profit you would make per contract 2 month loan The financier will
