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P4 hedging questions

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › P4 hedging questions

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • May 22, 2018 at 9:24 am #453310
    adolf121
    Member
    • Topics: 19
    • Replies: 39
    • ☆☆

    when looking at the interest rate risk hedging questions, I’v e noticed the examiners answers are done with $ values given for all calculations.

    I’m used to just providing the Effective interest rate for the relevant hedging method being considered, rather than going on to show the profits or losses possible from these.

    For example: I just find the LOCK-IN rate for futures which only takes a minute rather than going on to show the profit or losses possible from the futures and showing how it is effectively fixed (like in the answers)

    Even for options the answers goes on to show the premium payable when we could just easily add the premium basis points to the applicable spot rate (along with other rates) to get the answer.

    Will the effective rate method be enough for the exams? or do we need to show the detailed calculations like in the answer sheet. I’m a bit worried.

    May 22, 2018 at 10:10 am #453333
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    It depends on the exact wording of the requirements.

    If, as is most common, you are just asked to advise, then the marks are for proving that you understand the various methods available (futures, options etc) and how you show it does not matter – whether you work out gains/losses in $’s or calculate effective rates – provided obviously that your workings are clear for the marker.

    If, on the other hand, the question specifically asks for the gains or losses, or specifically asks for effective rates, then obviously you have no choice.

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