You are furnished with the following information:

FBM KLCI spot = 1,670 Risk free rate = 4.5% annualized FBM KLCI dividend yield = 1.5% annualized (a) If the 90-day FBM KLCI futures contract is priced at 1,675 points, show that arbitrage is possible.

(b) Outline the arbitrage strategy and calculate the profit derived if the FBM KLCI is 20% lower at futures maturity. Clearly show all computations.

(c) Taking into account futures trading operational realities and common market practices, if the 90-day FBM KLCI futures contract is priced at 1,682 points, would arbitrage be feasible?

(d) If the FBM KLCI was instead at 1,900 at futures maturity, would the amount of arbitrage profit be different? (No computations needed, just provide a brief intuitive explanation).

(e) In part (b) of this question, you computed the arbitrage profit that can be made. Suppose the profit amount is RM300 [this is not the answer to part (b), purely for illustrative purposes only]. This is the profit you would earn if you executed an arbitrage strategy using one (1) SIF contract. If you replicated this strategy multiple number of times, say, a million times, does that mean that you will earn RM300 million in arbitrage profit? Explain briefly.