CMC options Q2 — OpenTuition Forums

RRichard7y ago

Dear Sir The answer uses the forward rate to return excess funds of options purchased in the 1.07. I can understand this the case in a shortage as in 1.06 where you do not have enough, but surely when you have bought too many you must return at spot at the time or the 1.07

John MoffatTutor7y ago#1

I think you are referring to the over or under hedge, on which the forward rate can be used. Which rate to use depends on whether you have ended up over or under hedging. However this is a fairly minor point and it is not really essential to do the calculations on it, as long as you mention the possibility.

RRichard7y ago#2

Thanks, but if you look at Kenduri number 50 BPP, they are not going to the nearest round up, but 23.7 contracts comes down to 23 so you us the forward rate the correct way

John MoffatTutor7y ago#3

I have told you before that it does not matter in the exam whether you round up or down (I always round to the nearest contract, which in the case would be to 24 contracts). There is no 'rule' and you would still get full marks (provided, obviously, that your workings were clear enough for the marker to follow).

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