QUESTION: 25

Envy Manufacturing has several factories located in countries with poor reputations for human rights. It is concerned about potential risks of child labour being used within the supply chain. Envy Manufacturing has therefore decided to enlist the support of a third party auditing company to audit its factories. How should these audits be conducted? Select TWO

organised well in advance to allow the factory managers to prepare for the audit
conduct on the spot visits with no warning
conduct group interviews with workers to ensure that all voices are heard
conduct private meetings with a selection of workers

Answer(s): B,D

Explanation:

2 and 4 are correct. Audits should be unscheduled so that any issues can't be covered up in advance. Interviews with workers should also be conducted in private as this will allow them to speak their mind with confidence.
Where interviews are conducted as a group there may be peer-pressure to say the correct thing. especially if there are managers around. see p.88 for information on Audits

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QUESTION: 26

A financial instrument used by airlines to fix the price of fuel over a period of time is known commonly as a what?

commodity
swap
exchange
hedge

Answer(s): B

Explanation:

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

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QUESTION: 27

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?

yes- hedging is the only solution to mitigate the risk of adverse price movements
yes- this reduces the risk to 0
no- Leo LLP could do nothing and increase its prices instead
no- Leo LLP can take out insurance to mitigate this risk

Answer(s): C

Explanation:

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

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QUESTION: 28

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?

product liability
public liability
trade credit
professional indemnity

Answer(s): D

Explanation:

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

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QUESTION: 27

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