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Theory: Futures should lock in a fixed return when hedging currency/interest rate risk. Reality: Futures are exposed to basis risk → spot & futures prices don’t always move as predicted. Scenario (Wardegul Co): Hedge D27m receipt (31 Jan → 30 Jun). Options vs March futures. – No basis risk: Futures gave a fixed 4.58% return (stable, predictable). – With basis risk: Futures price slipped (94.36 → 94.16) → return fell to 4.38%. Options gave 4.45–4.90%. Implication: Even with correct interest rate forecasts, futures can underperform due to unexpected basis changes. Options may be safer for risk-averse treasurers. Exam focus: Be ready to: – Define basis risk clearly. – Calculate outcomes with & without basis risk. – Compare futures vs options and recommend based on risk appetite. Takeaway: Futures aren’t “perfect hedges” — basis risk adds unpredictability. Always consider alternatives like options. Studying ACCA? Learnsignal offers mock exams, expert feedback, video lessons, and structured plans to help you pass. 👉 https://www.learnsignal.com/acca/ #ACCA #AFM #BasisRisk #Futures #Options #RiskManagement #Learnsignal