A financial instrument used by airlines to fix the price of fuel over a period of time is known commonly as a what?
Answer(s): B
This is a 'swap' and is explained on p.94. This is a type of 'hedging' but there is no such thing as 'a hedge'. For a more in-depth look at Swaps see:https://www.mercatusenergy.com/blog/bid/77634/an-introduction-to-airline-fuel-hedging- strategies-swaps
Leo LLP is a company which sources materials internationally, and then sells these on nationally at a small margin. Leo LLP has noted that there is a risk of exchange rate fluctuations making their purchases unviable. The CFO has declared that the only way to mitigate this risk is via hedging and that they should look at price fixing. is this correct?
Answer(s): C
The correct answer is 3 'no Leo LLP could do nothing and increase its prices instead'. Firstly the CFO is wrong. There are other ways to mitigate this risk than hedging- hedging isn't the ONLY thing you can do. Therefore you automatically need to discount options that begin with yes. Then looking at the options that begin with no, insurance isn't going to help in this situtation. Therefore, by process of elimination you will be left with 'no Leo LLP could do nothing and increase its prices instead'. This question is taken from p.95 - there is a section here describing alternatives to hedging. When dealing with currency fluctuations, an alternative to fixing a price is to build in a margin on your own prices. This margin acts as a buffer for if prices go up- your price can remain the same. Other alternatives to hedging suggested by CIPS include; negotiating long term contracts, buying out the supplier and ingredient substitution
Kevin is a consultant who works for himself and is predominantly based at home, except for when he visits clients. He has recently taken on a role advising a client about the feasibility of building a new railway station in a village. Which of the following insurances would be vital for Kevin to take out?
Answer(s): D
As a consultant he will need Professional Indemnity insurance. This insurance is for roles that include providing advice, designs and services. Insurances comes up a bit in the exam so revise this from p.96-100
Which of the following insurances would provide cover in the eventuality that your supplier's place of business flooded and this affected your deliveries?
This is 'contingent business interruption' insurance. This protects you if anything were to happen to your suppliers' premises. Business Interruption Insurance would cover you if something were to happen to your premises. See p.99
Which of the following legal principles means that a person can only claim the value of a loss once, regardless of if they have multiple insurance policies?
This is contribution. An example of this is if you have two insurance policies and are going on a business trip that is cancelled last minute. You can claim on the insurance the value of the trip- but only once. So you can either use one policy and not the other, or you can claim half the value of the trip on both policies. This stops people taking out multiple policies and then claiming on them all to make a profit. Legal Principles of Insurance is a known exam topic - this is from p.100-101 of the study guide
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