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S1uuLn1 lu : .........................................

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56"#!'7( +

a) Conslder Lhe followlng slLuaLlons: ln lebruary, a dealer belleves LhaL due Lo
markeL volaLlllLy, Lhere may be an opporLunlLy for arblLrage beLween Lhe
kLl8C8 fuLures markeL and Lhe physlcal kLl8C8 markeL.

CurrenL markeL daLa are as follows:

1oday: March kLl8C8 fuLures 3.2
60 day kLl8C8 raLe 4.2
130 day kLl8C8 raLe 3.6

Assume LhaL you can borrow/lend 8M 10,000,000.

CuLllne Lhe LransacLlons LhaL Lhe dealer musL underLake Lo compleLe Lhe
arblLrage and calculaLe Lhe resulLlng proflL or loss.

(20 marks)

b) WhaL do Lhe Lerms "backwardaLlon" and "conLango" mean?
(3 marks)













56"#!'7( %

a) Madam lnLan, Lhe CLC of a flnanclal lnsLlLuLlon ln Malaysla wanLs
Lo lnvesL 8M 10 mllllon ln any poLenLlal flxed caplLal porLfollo ln Lhree
monLhs Llme. 1oday, early uecember 2008, you observed LhaL currenL MCS
raLe ls 7.3 per annum and March MCS fuLures are 111.23. AL Lhe same
Llme Lhe markeL scenarlo shows a falllng lnLeresL raLe for Lhe nexL few
monLhs. ln March 2009, as lL ls expecLed Lhe lnLeresL raLe yleld aL 6.7 per
annum and Lhe MCS fuLures aL 147.30.

l) WhaL ls Lhe besL sLraLegy Lo be Laken by Madam lnLan and
calculaLe Lhe neL effecL for Lhe above sLraLegy?
(20 marks)

b) Lxplaln Lhree (3) baslc requlremenLs for a vlable fuLures markeL.
(3 marks)