Question
stock market Future market January KLSE composite index stands at 1162. Investor expects to purchase a RM10million stock portfolio in two months time Buys March
| stock market | Future market | |
| January | KLSE composite index stands at 1162. Investor expects to purchase a RM10million stock portfolio in two months time | Buys March KLSE CI contracts at 1158 |
| March | KLSE composite index has risen to 1171, making the acquisition costs of the shares more expensive. | Sells March KLSE CI contracts at 1173 |
a. Explain why the investor has undertaken this particular hedging strategy.
b. Assume that the investor wants to cover the full value of their expected investment. How many March KLSE CI futures contracts must they purchase?
c. Calculate the profit/loss on the spot transaction.
d. Calculate the profit/loss on the futures transaction.
e. Is the hedging strategy efficient?
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Mathematics Of Finance
Authors: Robert Brown, Petr Zima
2nd Edition
0071756051, 9780071756051
