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IR Hedging

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › IR Hedging

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • August 6, 2021 at 8:25 pm #630625
    adamk123
    Member
    • Topics: 7
    • Replies: 10
    • ☆

    Hi, I am comparing two IR hedging questions Alecto Co 2012 and Awan Co 2013 from the Kaplan kit. One is a hedge to borrow and the other to invest.

    In the G/L futures calculation I noticed the Awan is doing the following:

    (94.76-94.55) x 2m x 32 x 3/12

    Whereas Alecto is:

    (97.02-96.16) x 25 x 37

    The first takes into account the contract size, no of contracts and most important a division by months and year whereas the latter is only taking into account the no of contracts & tick value.

    Why would this be the case and how can this be distinguished within the question?
    Is the 3/12 a rule to follow?

    Thanks

    August 7, 2021 at 9:59 am #630652
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    The tick value is calculated using the 3/12 which is because they are always 3 month futures. I do explain this in my free lectures on interest rate hedging (and as I explain in my lectures you never actually need to use ticks – it is your choice 🙂 )

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