Sept/December 2025 – Passmore Co – Currency Futures

Hi Sir John,

I was reviewing the Sept/December 2025 Passmore Co question and noticed that my answer differs slightly from the examiner’s answer because i used a different approach.

For the futures hedge, i calculated the required number of contracts as 40.4 contracts. Since only whole contracts can be used i rounded this down to 40 contracts.

Using 40 contracts, the amount hedged through futures is:

40 contracts × R5m = R200m

I then converted this amount using the futures lock in rate of 70.8658:

R200m / 70.8658 = approximately $2,822,228

The total receipt to be hedged is R202m. Therefore, after using 40 futures contracts there is an unhedged balance of R2m. Since the question does not specifically state how this residual amount should be dealt with i assumed that it could be hedged using the forward rate:

R2m / 70.85 = approximately $28,229

Therefore, my total hedged receipt was:

$2,822,228 + $28,229 = $2,850,456

However, the examiner’s answer applies the futures lock in rate directly to the full R202m receipt:

R202m / 70.8658 = $2,850,458

The difference between the two answers is very small and arises only because i used a forward contract for the unhedged R2m balance whereas the examiner applied the lock-in rate to the full amount.

Could you please clarify whether my approach would still receive full marks provided that i clearly state the assumption and explain how the unhedged balance has been treated? Since the question does not explicitly specify the treatment of the residual exposure after rounding the number of futures contracts i wanted to confirm whether my method would be acceptable in the exam.

Looking forward your response!