Today, in the middle of October 2022, Feroz believe that the quotations of KLCI futures in the Bursa Malaysia Derivatives (BMD) are mismatched. Feroz interested to trade 80% from RM100 millions of his portfolio between November 2022 and January 2023. Currently, the Malaysia Treasury Bill shows declining of 0.5% from 4.2% since last two months. The beta for his company currently shows twice volatile than the market. Currently, KLCI shows 1300 points while KLCI futures is 1350 points. KLCI futures for November, December and January currently is 1330, 1370 and 1410 points respectively.

Assume in November, KLCI has decline by 1% while KLCI futures for November and December has reduced by 2%. The dividend yield shows 1.5% lower than current Malaysia Treasury Bill.

Required:

What is appropriate strategy for Feroz to enter. What is/are the reason(s) Feroz enter this strategy?

Construct the above strategy.

Assess either his strategy benefits him? If not benefits him, why?

From the above strategy, is the futures market is undervalued or overvalued? And what are the differences from both arbitrages?