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Suppose you are a market-maker in the LuSE Index forward contracts. The LUSE Index spot price is K550 and the annual risk free rate is

Suppose you are a market-maker in the LuSE Index forward contracts. The LUSE Index spot price is K550 and the annual risk free rate is 5%.

i.Calculate the forward price for delivery in 9 months. (3 Marks)

ii.If the actual forward price is K561, how can you take advantage on this situation? (4 Marks)

iii.What are the problems that you will face in taking advantage of the situation? (3 Marks)

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