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Calculate the spreading benefits

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Reference no: EM133070220

FINANCIAL RISK MANAGEMENT

As a new professional spreader, in January 2021, you are bearish with the KLIBOR futures market. You trade for RM10 million in between March 2021 and April 2021.

The KLIBOR futures quoted as in January 2021:

Spot month 99.35

One-month 98.75

Two-months 98.27

Three-months 97.58

The KLIBOR futures quoted as in March 2021:

Spot month 98.66

One-month 97.11

Two-months 97.83

Three-months 98.21

Assume there is a commission charge of RM101 per round turn.

a) Calculate the spreading benefits.

b) Interpret the results from above. Is the strategy benefits him? Justify.

c) When should the trader enter the KLIBOR futures market in order to protect from the risk arising? Construct your strategy.

Reference no: EM133070220

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