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Dear sir,
In this qn, I have a doubtThe BPP revision kit says
‘If you are faced with a fraction of a contract when dealing with options, round down and hedge the remainder using a forward contract.’In this qn, the no. of contracts was 117.6 and was rounded off to 117 and a forward contract used on the balance amt.
My query is if I were to round it off to 118 and NOT use a forward contract , will I lose marks or is it acceptable?
Thanks.
I explain this in my free lectures!!!
It does not matter whether you round up or down. Whichever you do there will almost certainly always be an over or under hedge, and although ideally you would use a forward contract on this, more important for the marks is to mention this even if you do not do the arithmetic for that bit.
Please watch the lectures 🙂
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