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ACCA P4 Revision lectures Download ACCA P4 exam
July 21, 2018 at 3:19 pm
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?
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?
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.)
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?
April 4, 2018 at 7:33 pm
Yes it would 🙂
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.
February 12, 2018 at 7:50 am
You are welcome 🙂
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
November 3, 2016 at 6:31 am
To forecast a spot rate you use the purchasing power parity formula.
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
November 4, 2016 at 7:29 am
That is why in this question we cannot predict the spot rate and are not required to.
May 25, 2016 at 12:06 pm
May 25, 2016 at 2:55 pm
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.
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.
June 9, 2016 at 11:49 am
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?
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.
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