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Quick question,
I’m working through risk management questions and in the answers they always work through the profit/loss on the futures trade and work out what transaction at the spot rate is. Given P4 is so time pressured I would much rather just calculate and use the lock in rate instead as it’s much faster but I’m worried I will not get full credit for this approach in the exam.
Does anyone know definitively what the ACCA’s position on this is? i.e. can you use the lock in rate and get full marks for the question?
Also, in questions of the type ‘Company X is worried about whether interest rates will increase or decrease by 0.5%’, in the answers they work through each scenario, but teh outcome should be the same for a futures trade so again, can we just use the lock in rate?
It depends what the question actually asks you to do, and what information is given.
If you are told the spot rate on the date of the transaction then you would be expected to convert at that spot and calculate the gain or loss on the futures.
These days you are rarely given the spot rate on the date of the transaction in which case you have to calculate the lock-in rate.With regard to your second question, the outcome is unlikely to be the same because of the fixed contract size – it will only be the same if the amount divides exactly by the contract size.
But the marks anyway are mainly for proving that you understand what is happening. Providing that you workings are clear and that is obvious that you understand, then you will get most of the marks anyway.
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