ACCA AFM September 2026: Interest Rate Futures — Why Your Number of Contracts Is Wrong

If your interest rate futures answer starts with "amount ÷ contract size", you have already lost the marks. The contract count in ACCA AFM has a second half — the ratio of your loan or deposit period to the contract's three months — and leaving it out is one of the most reliable ways to fail a 12-mark hedging requirement.

The two numbers everyone gets backwards

AFM examiner reports keep flagging the same cluster of futures errors: going long when you should go short, picking the wrong contract month, and forgetting to adjust for the loan period against the standard three-month contract. That third one is the expensive one, because it corrupts every figure that follows.

Then students who do get the contract count right often break the next line instead. Having scaled the contracts up for a five-month deposit, they scale the settlement fraction up too — and count the same adjustment twice. The 3/12 in the gain or loss line is fixed. It is the futures contract's own three-month life. It never changes, whatever your exposure period is.

The ACCA worked example

Take Wardegul Co, used by the AFM examining team in their basis risk technical article. Today is 1 October. A receipt of D27m arrives on 31 January and will be invested until 30 June — five months. Contracts are three-month D futures, size D500,000. Base rate is 4.2%; March futures are priced at 94.78.

The wrong answer: D27,000,000 ÷ D500,000 = 54 contracts.

The correct answer: D27,000,000 ÷ D500,000 × 5 months ÷ 3 months = 90 contracts.

That is a 40% understatement of the hedge. Everything downstream — the gain, the net receipt, the effective rate, the recommendation — is now wrong, and the discussion marks that depend on comparing outcomes go with it.

Direction and month, before you calculate anything

Wardegul is investing, so the fear is rates falling. Futures prices rise when rates fall, so you buy. Borrowing? You sell. And the contract month is the first one expiring on or after the transaction date — the hedge runs to 31 January, so it is March, not December.

Now basis. Spot minus futures: (100 − 4.2) − 94.78 = 1.02. From 1 October, March futures have six months to run; at 31 January, two are left. Unexpired basis = 2/6 × 1.02 = 0.34. If the base rate rises to 5.3%, the expected futures price is 100 − 5.3 − 0.34 = 94.36.

The loss on the futures: (0.9436 − 0.9478) × D500,000 × 3/12 × 90 = D47,250. Note the 3/12 sitting next to the 90. The five months lives in the contract count. It does not live here as well.

Net receipt D515,250, an effective annual rate of 4.58% — and the same 4.58% if the rate falls to 3.6%. That symmetry is the point of a futures hedge, and it is also your check: if your two scenarios don't lock to the same rate, something in the contract count or the settlement fraction is wrong.

What to do

1. Write the contract line in three parts before you touch the calculator. Amount ÷ contract size × (exposure months ÷ 3). Round to the nearest whole number unless the scenario tells you to round down — examiner reports have penalised candidates for rounding up when the scenario said otherwise.

2. Lock 3/12 into the gain and loss line and leave it there. Contracts scale with the exposure period. The settlement fraction never does. Apply the adjustment once.

3. Calculate basis once, before the scenarios. Spot minus futures today, pro-rated by unexpired months over total months to expiry. One number feeds every outcome — and one sentence on basis risk (basis may not fall linearly, so the outcome could be better or worse than shown) picks up technical marks that most candidates walk past.

The numbers

AFM passed 47% in June 2026, up from 44% in March, and still one of the toughest at Strategic Professional. The September 2026 exams run from 7 to 11 September. Hedging appears in almost every sitting, and the contract count is the first line the marker sees.

Getting the direction right and the count wrong is still a wrong hedge. Do the ÷3 — it is worth more marks than anything else you will write in that answer.