It is 30 Sept, you noticed the following spot market quotations.
3-month KLIBOR = 5.25%
6-month KLIBOR = 6.50%
3-month KLIBOR futures = 91.00
(i) Calculate the mispricing.
(ii) Disclose the arbitrage strategy.
(iii) Assuming the 3-month KLIBOR rate on 24 Dec increases by 2% to 7.25%, show the profit/loss you would make per contract.
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