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over hedge or under hedge in foreign exchange

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › over hedge or under hedge in foreign exchange

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by AvatarJohn Moffat.
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  • August 22, 2018 at 5:25 am #468795
    Avatarthomas1212
    Member
    • Topics: 45
    • Replies: 16
    • ☆☆

    in lammer plc jun 06 adapted, the exercise price of 1.88, the contract was 19.57 so i have rounded up to 20 contracts for calculation.

    therefore it resulted into overhedge and got 621520(calculation is below) which was different from the answer by 859 (621520-620661)

    so if the decimal is more or equal to 0.5 can i round up as usual ?? and calculate as overhedge like below ?

    (the calculation below)

    total amount = 20 x 31250 = £625000
    premium payable = 0.0296 x 20 x 31250 = US18500
    premium payable using spot = 18500/1.9156 = £9657

    amount overhedged = 1150 000 – ( 20 x 31250 x 1.88) = 25000 and 25000/1.903 = £13137

    total amount payable = 625000+9657-13137 = £621520

    August 22, 2018 at 7:17 am #468820
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54839
    • ☆☆☆☆☆

    It doesn’t matter in the exam which way you round the number of contracts.

    You would still get full marks (provided, obviously, your workings were clear enough for the marker to be able to follow what you were doing 🙂 )

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