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Ms. Siva Sanggari, Treasurer of CITY Finance Berhad, has just completed a Maturity Bucket Analysis...

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Accounting

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Ms. Siva Sanggari, Treasurer of CITY Finance Berhad, has just completed a Maturity Bucket Analysis based on the a 6-month horizon. (a) If the market expectation is increase in interest rates, find the maturity bucket should Ms. Siva Sanggari worries most about. Explain why the particular bucket matters. (5 marks) (b) Outline an appropriate hedge strategy for Ms. Siva Sanggari. (5 marks) (c) Suppose the following quotes are available. Spot 1-month KLIBOR =4.0 percent 3 month KLIBOR =5.5 percent 6 -month KLIBOR =6.0 percent Futures Maturing in 1-month KLIBOR futures =95.5 3 month KLIBOR futures =93.0 Maturing in 6-month KLIBOR futures =92.5 i. Calculate interest rate Ms. Siva Sanggari 'lock-in' using your strategy in (b). (5 marks) ii. Assuming the 3-month KLIBOR is up to 1.5 percent over the period of your strategy, prove mathematically that Ms. Siva Sanggari is hedged and has locked-in her cost funds. (10 marks)

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