Hi Tutor,
For the options on interest rate futures, when questions provided 2 exercise price, did we always do both of the options? Or can we choose only one? (based on the below comment)
The recent technical article of interest rate risk management, comment that if is a Call Option, options to buy, choose the Lower price. Does this mean if is a Put Option, options to sell, choose the Higher Price?
And another questions regards to currency futures. Last December exam question.
Roughly describe the questions below,
An accounting staff in a company forgotten to do an hedging of receipts of foreign currency in Aug'17. The money will be received in Oct'17. And now is 1st Nov 17. Question ask us to calculate the profit or loss of the receipts using the spot rate. And gave us the option price to advise whether forward currency or currency options which are the preferred method to hedge the receipts.
Question given 3 dates, Aug, October and December. For this scenario which month to choose for the futures price?
Thank you so much.
Regards,
Eevon
Ask the Tutor ACCA AFM
Risk Management
8y ago#1All of the above is explained (with examples) in my free lectures on interest rate risk management and on foreign exchange risk management.
With regard to options, there is no 'best' exercise price - setting 'better' limit will mean paying a higher premium. In the exam then (unless, obviously, specifically told to do different) then you will get the marks by illustrating with any of the available exercise prices.
With regard to your question from last December, you cannot have remembered the dates correctly - if the money is received in October 17 and it is now November 17, then it is too late to do any hedging!!!
In general terms, when using futures (or options on futures) you also choose the futures that have a maturity date the earliest after the date of the receipt or payment.
Thank you sir!
8y ago#3You are welcome :-)
This topic is locked — no new replies.