You are a fund manager in an investment bank. You are currently managing the risk exposure of several funds. You have collected information as follows: Fund X invests in the Malaysian equity market....

Illustrate how the market risk exposure can be reduced for Fund X. Determine the total portfolio value if the KLCI trades at 1,550 points after 3 months.

Extracted text: You are a fund manager in an investment bank. You are currently managing the risk exposure of several funds. You have collected information as follows: Fund X invests in the Malaysian equity market. It has RM5 million in value and has a beta of 1.4. Your market analyst reported an expected slowdown in the Malaysian economy due to the spread of Covid-19. You would like to reduce the market exposure of beta to 1 by using derivatives. Currently, FTSE Bursa Malaysia KLCI stands at 1,600 points. The corresponding 3-month futures (FKLI) is trading at 1,590 points with contract size of RM50 per index point. Fund Y invests in Asian equity markets. The portfolio holdings include Chinese stocks valued at RMB2 million. Currently, the relevant spot exchange rate is MYR/RMB 1.6120 (1 MYR = 1.6120 RMB). You have decided to hedge against the currency risk by using a 3-month RMB/MYR forward contract with the same exchange rate as the spot. Fund Z is a corporate pension fund. The corporate client is conservative and demands an immunisation to be applied for the fund.