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interest rate futures

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › interest rate futures

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
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  • May 26, 2017 at 11:16 am #388261
    shilpamary
    Member
    • Topics: 99
    • Replies: 81
    • ☆☆

    once effective interest rates are found out using various options .should we recommend an option that has highest effective interest rate if we are receiving money and if its borrowing low-interest rate?

    May 26, 2017 at 3:58 pm #388297
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54702
    • ☆☆☆☆☆

    There is no ‘best’ option.

    If you are borrowing money, then the lower you fix the cap the more the premium will be (and, of course, the premium will be effectively wasted if the option is not exercised).

    All you can do in the exam is illustrate what will happen with each strike price, and make the point that I have made in my previous sentence.

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