QUESTION: 121

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 STIR can be tailored to the exact needs of the company.
A STIR is flexible and the position can be closed quickly and easily.
A STIR must be kept for the whole duration of the contract.
If interest rates have gone down the price of the future will have fallen.

Answer(s): B

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QUESTION: 122

K is a manufacturing company. It has sourced new equipment from the US to equip a new production facility.
It has to make a payment of USD1,000,000 in 3 months' time. K's production manager needs to know whether it is cheaper to use a forward contract or a money market hedge.
Current spot and forward exchange rates are as follows:
Current mid-point money market rates (annual) are as follows:
Ignoring taxation, which of the following statements is correct?

The money market hedge saves GBP15,196
The forward contract saves GBP2,629
The money market hedge saves GBP32,078
The forward contract saves GBP1,901

Answer(s): A

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QUESTION: 123

Which of the following will increase the value of a call option?

An increase in the strike price.
An increase in the time to expiry.
A decrease in the volatility of the share.
A decrease in the market value of the share.

Answer(s): B

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QUESTION: 124

P has decided to invest in a new warehouse at a cost of $2,000,000. The discount rate of the project is 18% and the present value of the tax shield is £26,000. What is the minimum acceptable Internal Rate of Return of the project?

18%
17.77%
18.23%
16.50%

Answer(s): B

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Free CIMAPRO19-P03-1 Exam Braindumps (page: 32)

QUESTION: 121

QUESTION: 122

QUESTION: 123

QUESTION: 124

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