CIMAPRA19-P03-1-ENG Practice Online

Question 1

A UK manufacturing company has simultaneously:
* purchased a put option to sell USD 1million at an exercise price of GBP1.00 = USD1.65
* sold a call option that grants the option holder the right to buy USD 1million at a price of GBP1.00 = USD1.61(this option has the same maturity date as the put).
Which of the following is a valid explanation for entering into these option positions?

A : The company expects to receive USD 1million from a customer and wishes to offset the cost of the put option by the premium on the call option.

B : The company expects to pay USD 1million to a supplier and wishes to offset the premium from the call option against the cost of the put option.

C : The company expects to receive USD 1million from a customer and wishes to obtain an additional benefit if the USD strengthens beyond GBP 1.00 = USD 1.61.

D : The company expects to pay USD 1million to a supplier and wishes to obtain additional protection against the USD strengthening beyond GBP 1.00 = USD 1.65.

Answer: A

Question 2

Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA)as a hedging instrument. The company treasurer has advised that a short-term interest rate (STIR)future would be better.
Which of the following is true of an STIR?

A : A STIR can be tailored to the exact needs of the company.

B : A STIR is flexible and the position can be closed quickly and easily

C : A STIR must be kept for the whole duration of the contract.

D : If interest rates have gone down the price of the future will have fallen.

Answer: B

Question 3

M, a manufacturing company, has had some problems with defects in one of the main productsitproduces. This product has been made by the company for many years and is very profitable. Last monthithad over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability
Which of the following controls could M introduce to reduce defects and also increase profitability?

A : M could increase the number of quality control staff.

B : M could introduce a procedure where quality control staff sign a form at the end of each dayto say they have examined 1 in 10 products for defects and they are satisfied with the quality.

C : The production director could examine one in every 10 products and sign a form to say they are satisfactory.

D : M could service machinery at least once a month as recommended by the machinery supplier.

E : M could check all employees qualifications to ensure they are qualified for their jobs.

Answer: A,B,D

Question 4

JHG manufactures inexpensive cars that compete largely on price Its cars have very basic equipment and small but economical engines JHG's Board is considering launching a luxury brand of cars that will be far better equipped, more comfortable and have much better performance
Which THREE of the following would be relevant factors to incorporate into the stress testing of this new strategy to create a luxury brand?

A : Reductions m motorway speed limits

B : The need for consumer research

C : Increased tax on vehicle emissions

D : The cost of designing new cars.

E : Potential changes in interest rates.

F : Sales of JHG's existing range of cars

Answer: A,C,D

Question 5

GHY is a listed company. Tom isGHY'sCEO and Peter isitsnon-executive Chair of the Board. Tom and Peterbothhave substantial relevant business and industrial experience andboth are believed to have considerable integrity. Tom and Peter quickly developed a good working relationship after Peter's appointment. They have become close friends.
Tom briefs Peter on every aspect of the business. Tom and Peter jointlyagreethe agenda foreveryboard meetingandboth agree on the manner in which matterswill be presented to theboard.
Taking account of the principles of goodcorporategovernance, which of the following statements is correct?

A : It is entirely appropriate that Tom and Peter have this kind of relationship and both are acting in the best interests of the company

B : Non-contentious board meetings show how well Tom and Peter are running the company and shows that the management is cohesive.

C : The relationship between Peter and Tom may have a detrimental effect on company decision making as the Boardis not always being informed about matters in an unbiased manner.

D : Since the non-executive chair clearly has a significant role within this company there is little danger that any individual will become excessively dominant.

Answer: C

Name:	P3 Risk Management (Online)
Exam Code:	CIMAPRA19-P03-1-ENG
Certification:	CIMA Professional Qualification
Vendor:	CIMA
Total Questions:	276
Last Updated:	May 15, 2024

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