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Dear Sir,
+ Could we be allowed to use some short cut calculations to go directly to the effective rate, ignoring calculation of actual amount of money?
For example: In Anwan Dec 13, the answer calculates the impact of FRA very detailed but we all know that the effective rate is FRA rate, not need to calculate anymore. Or if using interest futures, the answer calculates amount of money and effective rate for both cases of interest up & down, but we can very fast estimate the “lock-in” rate and this rate is the same in both cases!+ If the question provides multi strike prices of option, could we use only 1 strike price to illustrate hedging results? In Anwan Dec 13, the answer calculates the results for both 2 strike prices and it takes quite long time.
By all means use the lock-in rate – no problem (unless obviously the question specifically asks you to show amounts).
With regard to options, ideally you would do the calculations for all strike prices (in fact, once you have done it for one then it does get quite fast because it is rather repetitive). However if you are short of time then you will get most of the marks by having looked at one strike price (and discussing that there are alternatives).
The marks in the exam are mostly for proving you understand how the various alternatives ‘work’. Provided that it clear you understand futures etc. then you will get most of the marks. (Just make sure your workings are clear so that the marker can see that you understand 🙂 )
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