In past exam papers and revisions we are usually asked to edge the interest risk with options or futures. Usually this is for periods <1 year. In the last exam session we had a period of 18 months (if I am not mistaken). Can you please advise on the correct approach to take even for the calculation of contracts required?
Thanks in advance,
Alex
Ask the Tutor ACCA AFM
Risk edging - interest
5y ago#1The 'rule' is the same regardless of the length of the loan.
The number of contracts is the amount involved x (length of loan in months / 3) divided by the contract size. I explain the reasons for this in my free lectures.
Thank you John. so let's say that we have
contract size $100,000
amount $50,000,000
length of loan 18 mths
$50,000,000 * (18/3) / $100,000
Thanks, I panicked and I didn't know how to solve this even though I knew the rule
5y ago#3On what you have typed, the number of contracts would be correct.
As to how to solve it, I do explain in my lectures.
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