Part (b) was done unsatisfactorily by most candidates. Very few candidates got the calculations of the marked-to-market correct. These were relatively simple calculations as the number of contracts and tick value remained mostly unchanged.

What was required was to identify the change in ticks or basis points and multiply the three numbers together. Many candidates explained mark-to-market but fewer candidates identified the impact on the company’s cash flows.

Many candidates knew about the margin account and could explain this well. Only a small minority of candidates were able to explain why options are not normally exercised but sold with reference to the intrinsic and time value of an option.

It is surprising that part (b) was not done well given that there was an article written on this area in the Student Accountant a few months ago. The following could be possible explanations: that the candidates did not read the article or that candidates read the article but did not understand it in
depth.

It is unlikely that an article will relate completely to an exam question, but the examining team write the technical articles because they feel that it is an important area for candidates. However, it is then necessary for the candidates to take the content and subject matter of the article, and ensure that they understand the content fully.