Question 1

The Treasurer of Z intends to use interest rate options to set an interest rate cap on Z’s borrowings. Which of the following statement is correct?

Options :

A : The Treasurer should buy an interested rate floor and sell an interested cap ta the same time

B : The Treasurer will retain the benefit of movcTcnt3 in interest ratc3 below the floor limit.

C : The cost of a collar is lower than the cost of a cap a one.

D : The Treasurer will have to negotiate the options with Z-s Dark

Answer: C

Question 2

A company is preparing an integrated report according to the International <IR> Framework as issued by the

International Integrated Reporting Council.

Which THREE of the following should be included in the report?

Options :

A : An explanation of how the organisation-s governance structure supports its ability to create value in the short, medium and long term.

B : A detailed analysis of the organisation-s business model.

C : The challenges and uncertainties that the organisation is likely to encounter in pursuing its strategy.

D : A comparison of the key elements of its financial statements with those of its main competitor.

E : A summary of the key issues discussed by directors in main board meetings.

Answer: A,B,C

Question 3

A company has a covenant on its 5% long term corporate bond.

• Covenant - The earnings must not fall below $7 million

The bond has a nominal value of $60 million.

It is currently trading at 80% of its nominal value.

The projected earnings before interest and taxation for next year are $11.5 million.

The company retains 80% of its earnings. It pays tax at 20%.

Advise the Board of Directors which of the following covenant conditions will apply next year?

Options :

A : The earnings will be = $7.28 million (The covenant will not be breached).

B : The earnings will be = $11.50 million (The covenant will not be breached).

C : The earnings will be = $6.80 million (The covenant will be breached).

D : The earnings will be = $5.44 million (The covenant will be breached).

Answer: C

Question 4

A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.

It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay

Libor + 1% once a year.

The company predicts that Libor will be 4% over the life of the 5 years.

What is the impact of the swap on the company's annual interest cost assuming that

the Libor prediction is correct?

Options :

A : Increase by 1%.

B : Fall by 1%.

C : Remain the same.

D : Fall by 2%.

Answer: C

Question 5

Company X is based in Country A, whose currency is the A$.

It trades with customers in Country B, whose currency is the B$.

Company X aims to maintain its revenue from exports to Country B at 25% of total revenue.

Company A has the following forecast revenue:

The forecast revenue from Country B has assumed an exchange rate of A$1/B$2, that is A$1 = B$2.

If the B$ depreciates against the A$ by 10%, the ratio of revenue generated from Country B as a percentage of

total revenue will:

Options :

A : fall to 23.3%.

B : rise to 27.0%.

C : rise to 30.3%.

D : fall to 22.7%.

Answer: A

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