Home / Practice / ACCA / New at Expertise level / E4 Valuation and hedging with derivatives
8 ACCA New at Expertise level questions with answers and explanations.
Printable worksheet with answer key
Which valuation method uses net realisable value of assets?
What is a limitation of the P/E valuation method?
Correct answer: It depends on finding a comparable company
Differences in risk and growth affect it.
What is a feature of exchange-traded currency futures?
Correct answer: They are standardised and need margin payments
Standard sizes and dates can make the hedge imperfect.
What does an OTC currency option give the holder?
Correct answer: The right, but not the obligation, to buy or sell at a set rate
The holder pays a premium.
Which hedge removes both the risk and the possible gain from a favourable move?
Correct answer: A forward contract
An option allows the holder to benefit from favourable moves.
A company must pay FC 600,000 in 3 months. The spot rate is FC 3.00 to $1 and the 3-month foreign deposit rate is 2 percent. What does it deposit now, to the nearest unit?
What does basis risk mean in a hedge?
Correct answer: The hedge does not move exactly with the exposure
It can leave part of the exposure unhedged.
Behavioural finance suggests that share prices can be affected by:
Correct answer: Investor psychology, such as herding and overconfidence
It challenges strong market efficiency.