(a) Your money market broker quotes you the following spot rates:
3-month KLIBOR = 8%
6-month KLIBOR = 9.5%
What should the correct price of a 3-month KLIBOR futures contract be?

(b) A bank has agreed to provide its client with a fixed rate 3-month RM20 million loan 90 days from today. The loan is priced at 12% per annum. Assume that the cost of funds of the bank is the KLIBOR rate. The following quotes have been given:
3-month KLIBOR = 9%
3-month KLIBOR futures = 90.0 (matures in 90 days)
i. How would the bank protect itself from a rise in interest rates? State the strategy.
ii. Assuming interest rates rise by 2% over the next 3 months, show using computations, that the bank has locked-in the interest spread.

Answer rating: 100% (QA)

a The price of the 3month KLIBOR futures contract should be 890 This can be calculated using the fol... View the full answer