• Skip to primary navigation
  • Skip to main content
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
    • BT
    • MA
    • FA
    • LW
    • PM
    • TX-UK
    • FR
    • AA
    • FM
    • SBL
    • SBR
    • AAA
    • AFM
    • APM
    • ATX
    • Dates
    • What is ACCA

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for March and June 2025 exams.
Get your discount code >>

ACCA P4 Question 1 June 2014 part 2

VIVA

ACCA P4 Revision lectures Download ACCA P4 exam


Reader Interactions

Comments

  1. balleong says

    September 8, 2022 at 9:16 pm

    Hello John, I understand about choice between call or put options. In the answer, it say sell put options. What I still don’t understand is when to buy or sell. In this case, why sell put options rather than buy put options? I couldn’t hear that explained in the video. Thank you.

    Log in to Reply
  2. karang says

    June 6, 2021 at 1:58 pm

    Hi John why we have not calculated gain or loss on futures

    In options why we have not taken the spot rates by taking the basis and why here also we have not calculated profit or loss on options

    Log in to Reply
    • John Moffat says

      June 6, 2021 at 4:06 pm

      We cannot calculate the gain or loss on the futures because we do not know the futures price on the date of the transaction.

      So (as usual) we have used the lock-in rate which I explain in my lectures, and this calculates the net effect of converting the transaction at spot together with the gain or loss on the futures.

      We do not know the spot rate on the date of the transaction and so we cannot calculate a gain or loss on the options.

      Log in to Reply
      • karang says

        June 7, 2021 at 3:23 pm

        Thanks John that clarifies the doubt

  3. duybachhpvn says

    July 21, 2018 at 3:19 pm

    Hi John,

    Why does the examiner’s answer use the lock-in rate 1.0651 to calculate the number of contracts instead of using the future price of 1.0659?

    Thank you

    Log in to Reply
    • duybachhpvn says

      July 21, 2018 at 3:28 pm

      Actually it is the question for the Futures part.

      For the Options part, I read some where that we should always round down the number of contracts and hedge the un-hedged amounts. Then in the option choice of exercise price 1.07, is there any problem that I round down the contracts to 37 and hedge the rest of the amount using forward rate?

      Thank you

      Log in to Reply
    • John Moffat says

      July 21, 2018 at 5:12 pm

      First question: It doesn’t matter – there is a logic to both (and the number of contracts will either be the same or will not be much different).

      Second question: It is not a rule to round down (but it doesn’t matter). I always round to the nearest contract and then use the forward rate on the over or under hedge. (Using the forward rate on the over or under hedge is a minor point in terms of the marks – do it if you have time. If not then just mention it.)

      Log in to Reply
  4. mjibola says

    April 4, 2018 at 8:38 am

    The question asked us to demonstrate.. if it had asked to evaluate and recommend, would using your approach (worst outcome) on the option contract be on the right path?

    Log in to Reply
    • John Moffat says

      April 4, 2018 at 7:33 pm

      Yes it would 馃檪

      Log in to Reply
  5. Lilit says

    February 12, 2018 at 4:55 am

    Life saver ! I was strugling to understand the options calculation by myself with no result. Now all is clear.

    Biiiig big thanks.

    Log in to Reply
    • John Moffat says

      February 12, 2018 at 7:50 am

      You are welcome 馃檪

      Log in to Reply
  6. sami12185 says

    November 2, 2016 at 5:37 pm

    Sir what if I want to predict the spot rate on the date of transaction that will be in 4months time what arithmetic will be involved in it

    Log in to Reply
    • John Moffat says

      November 3, 2016 at 6:31 am

      To forecast a spot rate you use the purchasing power parity formula.

      Log in to Reply
      • sami12185 says

        November 4, 2016 at 12:25 am

        Sir specific ti this question we don’t know the inflation its only told to be 3 times higher than swiss so how can I predict spot rate

      • John Moffat says

        November 4, 2016 at 7:29 am

        That is why in this question we cannot predict the spot rate and are not required to.

  7. usmanbutt says

    May 25, 2016 at 12:06 pm

    ok thanks

    Log in to Reply
    • John Moffat says

      May 25, 2016 at 2:55 pm

      You are welcome 馃檪

      Log in to Reply
  8. usmanbutt says

    May 18, 2016 at 9:47 am

    my question here is we will come to that we are under or over hedge when we exercise the options either 1.6 or 1.07 and on exercise date the forward rate could be different from what he has given in the exam question so show can we convert the under or over hedge amount using the given forward rate which could not be valid by that time.

    Log in to Reply
    • John Moffat says

      May 18, 2016 at 2:30 pm

      You know ‘now’ what the amount of the over or under hedge is going to be. Therefore you would use ‘today’s’ forward rate, and that is then fixed.

      Log in to Reply
      • solrac says

        June 9, 2016 at 11:49 am

        Hi John

        is it okay to use the lock in rate as the spot rate for the option hence leave the option to lapse at 1.60 and exercise at 1.70 making a slight gain on that?

      • John Moffat says

        June 9, 2016 at 3:41 pm

        No. The lock in rate is not a forecast of the futures price – it is a forecast of the net effect on converting at spot and the profit or loss on the futures deal.

Leave a Reply Cancel reply

You must be logged in to post a comment.

Copyright © 2025 路 Support 路 Contact 路 Advertising 路 OpenLicense 路 About 路 Sitemap 路 Comments 路 Log in