Mr. Aiman, Treasurer of AJ Finance Berhad, has just completed a Maturity Bucket Analysis based on the a 6-month horizon. (This question requires material discussed in Appendix 1). Month 1 2 3 4 5 6 Total RSA (RM million) 44 168 160 120 144 240 876 RSL (RM million) 52 160 220 120 128 170 850 GAP (RM million) -8 +8 -60 0 +16 +70 +26 a) If the market expectation is increase in interest rates, find the maturity bucket should Mr. Aiman, worries most about. Explain why the particular bucket matters. b) Outline an appropriate hedge strategy for Mr. Aiman,. c) Suppose the following quotes are available. Spot 1-month KLIBOR = 4.0 percent 3-month KLIBOR = 5.0 percent 6-month KLIBOR = 5.5 percent Futures Maturing in 1-month KLIBOR futures = 95.5 3-month KLIBOR futures = 94.0 Maturing in 6-month KLIBOR futures = 93.0 i. Calculate interest rate Mr. Aiman, 'lock-in' using your strategy in (b). ii. Assuming the 3-month KLIBOR is up to 2 percent over the period of your strategy, prove mathematically that Mr. Aiman, is hedged and has locked-in his cost funds.
Mr. Aiman, Treasurer of AJ Finance Berhad, has just completed a Maturity Bucket Analysis based on the a 6-month horizon. (This question requires material discussed in Appendix 1).
| Month | 1 | 2 | 3 | 4 | 5 | 6 | Total |
| RSA (RM million) | 44 | 168 | 160 | 120 | 144 | 240 | 876 |
| RSL (RM million) | 52 | 160 | 220 | 120 | 128 | 170 | 850 |
| GAP (RM million) | -8 | +8 | -60 | 0 | +16 | +70 | +26 |
a) If the market expectation is increase in interest rates, find the maturity bucket should Mr. Aiman, worries most about. Explain why the particular bucket matters.
b) Outline an appropriate hedge strategy for Mr. Aiman,.
c) Suppose the following quotes are available.
Spot
1-month KLIBOR = 4.0 percent
3-month KLIBOR = 5.0 percent
6-month KLIBOR = 5.5 percent
Futures
Maturing in 1-month KLIBOR futures = 95.5
3-month KLIBOR futures = 94.0
Maturing in 6-month KLIBOR futures = 93.0
i. Calculate interest rate Mr. Aiman, 'lock-in' using your strategy in (b).
ii. Assuming the 3-month KLIBOR is up to 2 percent over the period of your strategy, prove mathematically that Mr. Aiman, is hedged and has locked-in his cost funds.
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