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Appropriate hedging strategy

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Appropriate hedging strategy

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • November 28, 2018 at 7:02 pm #486325
    msk29
    Member
    • Topics: 82
    • Replies: 65
    • ☆☆

    Hello!

    For writing the conclusion in the report, how do we tend to choose which would be the appropriate hedging strategy from the derivatives calculated? It can either be from foreign exchange (eg. Money market hedge, Forward contracts,Future contracts and options) or interest rate risk exposures (eg. FRA’s, option on futures and futures).

    Do we take the highest for receipts (or borrowals) and lowest for payments (or deposits)?

    Thank you.

    November 29, 2018 at 7:46 am #486362
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54835
    • ☆☆☆☆☆

    That is a factor to mention, but there is never a ‘best’ recommendation. The marks are for proving that you understand the various hedging techniques and can write sensibly about the various merits and demerits given the circumstances in the question.

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