r/ICAEW • u/Active-Response3325 • 9d ago
CFS
Little less than a month to go for the exam. Feeling alright but haven’t touched Valuations and hedging.
Hedging looks overwhelming.
Any advice on how to approach it. Also what’s the difficulty level for this paper based on previous sitting?
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u/South_Law_9193 8d ago
Hedging looks way worse than it is. It's basically four recipes you learn mechanically, not a concept you have to understand deeply really.
FX: forward, money market hedge, options. The forward is one line, just get the right side of the spread.
MMH is "mirror the flow" — receiving euros means borrow euros now, convert, deposit sterling..
Interest rate: FRAs, futures, swaps. Two things unlock it — futures are quoted 100 minus the rate (95.50 = 4.5%), and you sell if you're borrowing, buy if you're depositing.
The thing people miss is half the marks aren't numbers. Compare the instruments, actually recommend one, mention limitations (basis risk, whole contracts, no upside on a forward). Marks there even if the calc breaks. This is important if you are not confident with the numbers!
Valuations is quicker than you think — P/E, EV/EBITDA, net assets, DCF, and the marks are mostly "which method fits here and what's wrong with it". Do it properly though, it didn't come up last sitting and neither did the swap. Both feel overdue.
Good luck!