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Adverane Co (march 2018)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Adverane Co (march 2018)

  • This topic has 3 replies, 3 voices, and was last updated 5 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • November 25, 2018 at 8:13 pm #485964
    niki27
    Member
    • Topics: 82
    • Replies: 15
    • ☆☆

    Dear sir,
    I have some confusion regarding this qn

    The answer regarding futures hedging says this

    Using spot rate, predicted futures rate = 1·1222 – ([1·1222 – 1·1204] x 4/6) = 1·1210

    Expected receipt = $6,450,000/1·1210 = CHF5,753,791
    Number of contracts = CHF5,753,791/125,000 = 46·03 contracts, approximately 46 contracts

    I divided 6,450,000 by the spot rate of 1·1222 and I get 46 as well.

    Isn’t that supposed to be receipt by spot rate by the size of futures contarcts or have i got this wrong?

    Thanks

    November 26, 2018 at 11:08 am #486009
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    It is strictly better to divide by the lock-in rate, but you would not lose marks for what you have done 🙂

    May 10, 2020 at 11:28 am #570466
    teresa1014
    Member
    • Topics: 7
    • Replies: 7
    • ☆

    Dear sir,

    If I divide by 1.1204 (6-month expiry futures price) instead of lock in rate, I also got 46 contracts. Is it correct or not?

    Thank you!

    May 10, 2020 at 4:56 pm #570507
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    Yes – that would be fine 🙂

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