Question 3 - Set up

In this lesson

1. 0:00 AFM Practice Exam Section B Overview
2. 0:39 Understanding Hedging Requirements
3. 2:08 Company Background and Investment Context
4. 3:00 Hedging Information and Key Dates
5. 5:03 Interest Rate Options Setup
6. 6:06 Interest Rate Swap Details
7. 8:00 Question Requirements and Calculation Plan
8. 10:07 Analysis and Part B Strategy

About this lesson

The video breaks down a real exam scenario where you need to hedge a $84 million borrowing facility, showing you how to set up the problem methodically, identify what calculations are required, and plan your time effectively across both parts of the question. You'll see how to extract key information from the exhibits, including the borrowing details, forward and futures rates, option contracts, and swap counterparty terms. The tutor explains the crucial distinction between what requires detailed calculations (options and swaps) and what needs only commentary (forwards and futures), helping you focus your effort where the marks are. This setup phase is essential for tackling the 15-mark hedging calculations and the 5-mark analysis of the Treasury Department's staffing and responsibilities. By the end of this video, you'll understand the structure of a typical AFM hedging question and have a clear plan for working through options pricing, basis adjustments, swap benefit calculations, and the critical analysis required in part B. You'll also learn how to manage your exam time effectively so you don't run out of time for the qualitative elements of the question.

Duration: 12m