Question 1

Which TWO of the following are reasons for a company to comply with the Committee of Sponsoring Organisations of the Treadway Commission 2017 Enterprise Risk Management Framework (COSO Framework)?

Options :

A : Complying with the COSO Framework will mean all employees of a company will comply with internal controls

B : Complying with the COSO Framework will mean that a company-s internal controls will work properly

C : Complying with the COSO Framework will mean there is a good structure to a company-s risk management system

D : Complying with the COSO Framework will mean that all staff will understand a company-s risk management system

E : Complying with the COSO Framework will improve a company-s reputation

Answer: A,C

Question 2

FGT is evaluating the political risks associated with its operations around the world.

Which of the following would indicate that a particular subsidiary has a high level ofpolitical risk?

Options :

A : Forthcoming elections in the subsidiary-s host country.

B : The subsidiary-s host country requires the active participation of local partners before the subsidiary can operate.

C : Company law in the subsidiary host country is lax.

D : The subsidiary islocated a considerable distance from FGT-s home country.

E : Thesubsidiary employs a large number of nationals from the host country.

Answer: A,B,C

Question 3

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?

Options :

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 4

P Ltd, a manufacturing company, is considering a new capital investment project to set up a new production line. The initial appraisal shows a healthy net present value of $6,465 millionat a discount rate of 10% as shown in the table below:

However, management is unsure about the demand for theproduct which will be produced and has insisted that the future revenues should be reduced to certainity equivalents by taking 70%, 65% and 60% of the years 1,2, and 3 cash inflows respectively.

What should P do?

Options :

A : Proceed with the project, it has a healthy net present value.

B : Stop the project, it has considerable risk.

C : Put pressure on sales and marketing to re-verify their forecasts.

D : Re-appraise the project using other capital appraisal techniques to get a more balanced view.

Answer: D

Question 5

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?

Options :

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

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