FM G Risk management

Written by Mahnoor Sheikh (ACCA)

ACCA · Financial Management · 9 questions

Name: ____________________   Date: ____________

1. The risk that exchange rates change between agreeing and settling a transaction is called:

   • A Basis risk
   • B Translation risk
   • C Transaction risk
   • D Economic risk

2. Purchasing power parity says that exchange rates change to reflect differences in:

   • A Population
   • B Interest rates only
   • C Inflation
   • D Tax rates

3. The spot rate is 100 foreign currency units per $1. Annual interest is 8 percent in the foreign currency and 3 percent in dollars. What is the one-year forward rate under interest rate parity?

   • A 103.92
   • B 108.00
   • C 95.37
   • D 104.85

4. The spot rate is 100 per $1. Inflation is 6 percent in the foreign currency and 2 percent in dollars. What is the expected spot rate in a year under PPP?

   • A 106.00
   • B 104.85
   • C 94.34
   • D 103.92

5. Which is a way of hedging currency risk by offsetting receipts and payments in the same currency?

   • A Lagging
   • B Factoring
   • C Leading
   • D Netting

6. What does a forward exchange contract do?

   • A Removes all risk
   • B Guarantees a profit
   • C Fixes the rate for a future date
   • D Cancels the transaction

7. What is gap exposure in interest rate risk?

   • A The gap between tax and interest
   • B The gap between profit and cash
   • C The difference in the amounts of assets and liabilities that reprice at different times
   • D The difference between two currencies

8. What does a forward rate agreement (FRA) do?

   • A Fixes the tax rate
   • B Fixes the share price
   • C Fixes an exchange rate
   • D Fixes the interest rate for a future period

9. Which theory says that long-term interest rates reflect expected future short-term rates?

   • A Expectations theory
   • B Liquidity preference theory
   • C Purchasing power parity
   • D Market segmentation