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QUESTION 8 As a speculative trader you are interested in the performance...

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Finance

QUESTION 8

As a speculative trader you are interested in the performance of the KLIBOR market. The last few months you observed the market had a bearish pattern. However, today you believe that the index performance will increasing in the near future. Assuming you are required to pay initial margin of RM8000/contract and maintain 85% of it, commission is charged at RM105/contract. The table below is the settlement index prices for the following trading days:

Day

Today

1

2

3

4

Implied rate

9.90

10.15

9.80

9.65

9.72

Required:

  1. Determine the contract value, initial margin and maintenance margin.
  2. Prepare a complete marked-to-market position based on the above information.
  3. If the trader decides to close-out his position on day 5 at 9.95, calculate his realised profit or loss.
  4. Conclude the result from the above strategy.

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