stock market January KLSE composite index stands at 1162. Investor expects to purchase a RM10million stock portfolio in two months' time March KLSE composite index has risen to 1171, making the acquisition costs of the shares more expensive. Future market Buys March KLSE CI contracts at 1158 Sells March KLSE Cl contracts at 1173 a. Explain why the investor has undertaken this particular hedging strategy. b. Assume that the investor wants to cover the full value of their expected investment. How many March KLSE CI futures contracts must they purchase? c. Calculate the profit/loss on the spot transaction. d. Calculate the profit/loss on the futures transaction. e. Is the hedging strategy efficient?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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financial risk management

amswer question b only

stock market
Future market
January KLSE composite index stands at 1162. Investor
expects to purchase a RM10million stock
portfolio in two months' time
Buys March KLSE
CI contracts at
1158
March
KLSE composite index has risen to 1171,
making the acquisition costs of the shares
more expensive.
Sells March KLSE
CI contracts at
1173
a. Explain why the investor has undertaken this particular hedging strategy.
b. Assume that the investor wants to cover the full value of their expected investment. How many March
KLSE CI futures contracts must they purchase?
c. Calculate the profit/loss on the spot transaction.
d. Calculate the profit/loss on the futures transaction.
e. Is the hedging strategy efficient?
Transcribed Image Text:stock market Future market January KLSE composite index stands at 1162. Investor expects to purchase a RM10million stock portfolio in two months' time Buys March KLSE CI contracts at 1158 March KLSE composite index has risen to 1171, making the acquisition costs of the shares more expensive. Sells March KLSE CI contracts at 1173 a. Explain why the investor has undertaken this particular hedging strategy. b. Assume that the investor wants to cover the full value of their expected investment. How many March KLSE CI futures contracts must they purchase? c. Calculate the profit/loss on the spot transaction. d. Calculate the profit/loss on the futures transaction. e. Is the hedging strategy efficient?
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