• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
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
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

Choosing the strikes to hedge interest rates

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Choosing the strikes to hedge interest rates

  • This topic has 1 reply, 2 voices, and was last updated 8 months ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • May 15, 2022 at 5:36 am #655662
    taskmaster
    Member
    • Topics: 19
    • Replies: 13
    • ☆

    Hi John,
    I have some confusion in choosing strike to hedge interest rates.
    My logic is:
    For call options = (100-strike price)-premium and choose the strike with the highest value
    For put options = (100-strike price)+premium and choose the strike with the lowest value

    Is my understanding right?

    May 15, 2022 at 9:57 am #655677
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51545
    • ☆☆☆☆☆

    No. The problem is that although different strike prices will result in different maximum or minimum effective interest rates (depending on whether call or put options), the premiums will be different (and the premium is of course ‘wasted’ but will still have been paid even if the option is not exercised).

    Ideally in the exam you should show the effect for each of the strike prices available (and usually these days there are only two). If you are short of time, then just showing for one of them will get more than the half marks needed (because the examiner is more concerned that you can prove you know how options ‘work’).

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • ashif94 on Revaluation Reserve – ACCA Financial Accounting (FA) lectures
  • jcacca15 on PPE – revaluation upwards – ACCA Financial Reporting (FR)
  • jcacca15 on PPE – Introduction – ACCA Financial Reporting (FR)
  • jcacca15 on PPE – Introduction – ACCA Financial Reporting (FR)
  • shazleen on ACCA AB Chapter 10 – Management – Questions

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy