ACCA AFM Hedging Questions: The 3 Calculation Errors Costing You 8 Marks (June 2026)
The 3 Hedging Calculation Errors AFM Examiners Flag Every Single Sitting
AFM hedging questions — interest rate risk or forex — appear in Section B every exam. Technically demanding, mark-rich, and predictable. The examiner's reports from March/June 2025 and September/December 2025 flag the exact same three calculation errors every time. Fix these, and you're looking at 8+ extra marks in a 25-mark question.
What the Hedging Question Actually Asks For
The Section B hedging question asks you to calculate the outcome of two or three hedging methods — futures, options, forwards, or FRAs — apply them to a specific transaction, and make a recommendation. The marks split roughly 60:40 between calculations and discussion. Both halves have predictable failure points.
Error 1: Leaving Out the Buy/Sell Decision and Contract Count
Flagged in both the March/June 2025 interest rate question (Sohbet Co) and the September/December 2025 forex question (Passmore Co), in almost identical language.
March/June 2025: "There were a significant number of candidates who failed to state whether they were buying or selling futures."
September/December 2025: "Candidates must state in their answer how many contracts would be needed, whether the company should buy or sell the contracts and the relevant month of the contract... Valuable marks will be lost if this information is not stated."
This is not a calculation — it takes three seconds to write. For every hedging question, your answer must state: the instrument, whether buying or selling, the contract month, and the number of contracts before the calculation begins. These are marking criteria in their own right.
Error 2: Using Fractional Contracts
Futures and exchange-traded options are standardised instruments. You can only trade whole contracts. The examiner is explicit in September/December 2025: "There were also a significant number of candidates that did not use a whole number of contracts... Companies can only buy or sell whole contracts so candidates therefore need to calculate the number of contracts to the nearest whole number."
In Passmore Co, the correct number was 40 contracts. Candidates were using 40.4. That fractional difference cascades through the premium calculation, the gain calculation, and the final comparison — costing marks at every step.
Fix: round to the nearest whole number at the contracts stage. Any residual unhedged amount is treated as immaterial unless the question states otherwise. Do not hedge the balance on the forward market unless instructed.
Error 3: No Recommendation
The requirement says "recommend an appropriate hedging strategy." Candidates calculate outcomes of two or three methods — and then stop. No recommendation.
March/June 2025: "The requirement does ask for a recommendation, and it was disappointing to note that quite a few candidates failed to do this."
September/December 2025: "Candidates' responses to the discussion element were generally good although many candidates failed to make a recommendation."
This costs marks twice: explicit marks for the recommendation itself, and professional skills marks for commercial acumen and analysis and evaluation that require connecting your numbers to a conclusion. One good paragraph covers both.
What a Recommendation Paragraph Looks Like
Weak: "The futures hedge gives a return of 4.1% and the options hedge gives a return of 3.9%."
Strong: "The futures hedge produces a net return of 4.1%, exceeding the directors' minimum target of 4%, while the options hedge produces 3.9%, marginally short. However, the scenario states that the base rate has recently been volatile. Options — unlike futures — do not need to be exercised if rates move favourably. Given this volatility and the modest premium cost relative to the transaction size, the options hedge is the more prudent recommendation: it provides downside protection while preserving the ability to benefit from any favourable rate movement."
That is two to three marks. Sixty seconds to write once the calculations are done.
What to Do Before June
Practise Sohbet Co (March/June 2025) for interest rate hedging and Passmore Co (September/December 2025) for forex — both on the ACCA Practice Platform with published answers. When you attempt each one, write three things at the top of your calculation before anything else: instrument, buy or sell, number of contracts (whole number). Then commit to a recommendation paragraph at the end, linked to your results and the scenario's stated objectives.
The Numbers
AFM has a 44% pass rate. The hedging question is 25 marks — nearly a third of the total. Candidates who are prepared on NPV and valuations often drop significant marks on hedging not because of knowledge gaps, but because they skip the steps the examiner is specifically marking. These are not knowledge gaps. They are exam technique gaps — and they are fixable in one focused practice session.