اردو

Home / Practice / ACCA / Strategic Professional / AFM Treasury and advanced risk management

AFM Treasury and advanced risk management

7 ACCA Strategic Professional questions with answers and explanations.

Printable worksheet with answer key

All questions with answers
  1. Spot is $1.10 per euro. US interest is 5 percent and euro interest is 3 percent. By interest rate parity, the one year forward rate is closest to:

    • 1 $1.080 per euro
    • 2 $1.121 per euro
    • 3 $1.155 per euro
    • 4 $1.100 per euro
    Show answer

    Correct answer: $1.121 per euro

    Forward = 1.10 x 1.05 / 1.03 = 1.1214. The currency with the higher interest rate trades at a forward discount.

    Report a mistake

  2. A company with floating rate borrowing wishes to convert to fixed payments. It should enter an interest rate swap to:

    • 1 Pay fixed and receive floating
    • 2 Pay floating and receive fixed
    • 3 Buy a put option
    • 4 Sell a futures contract
    Show answer

    Correct answer: Pay fixed and receive floating

    Receiving floating offsets the floating interest on the loan, and paying fixed leaves the net cost fixed.

    Report a mistake

  3. A company will borrow $10m in six months for six months. It uses three month futures contracts of $1m. The number of contracts is:

    • 1 5
    • 2 20
    • 3 10
    • 4 60
    Show answer

    Correct answer: 20

    10m / 1m x 6/3 = 20 contracts, sold to hedge a rise in rates.

    Report a mistake

  4. Using a forward contract to hedge a currency receipt:

    • 1 Fixes the rate and removes both the downside and the upside
    • 2 Gives the right but not the obligation to exchange
    • 3 Gives upside if rates move favourably
    • 4 Has an up-front premium
    Show answer

    Correct answer: Fixes the rate and removes both the downside and the upside

    An option gives the right but not the obligation, and costs a premium. A forward is binding.

    Report a mistake

  5. An increase in the volatility of the underlying asset, other things equal, will:

    • 1 Increase the value of both call and put options
    • 2 Decrease the value of a call option
    • 3 Decrease the value of a put option
    • 4 Have no effect on option values
    Show answer

    Correct answer: Increase the value of both call and put options

    More volatility increases the chance of a large favourable move, while the downside is limited to the premium.

    Report a mistake

  6. Basis risk in hedging with futures is the risk that:

    • 1 The counterparty defaults
    • 2 The futures price and the spot price do not move together exactly
    • 3 The contract is too small
    • 4 Margin payments are not made
    Show answer

    Correct answer: The futures price and the spot price do not move together exactly

    Hedges using futures may be imperfect because the spot and futures prices can change by different amounts.

    Report a mistake

  7. A company expects to receive $2m in three months. It is concerned the dollar will fall against its home currency. Which hedge could use money market borrowing?

    • 1 Buy a call on the home currency
    • 2 Borrow dollars now, convert them to the home currency and repay with the receipt
    • 3 Buy dollars forward
    • 4 Sell home currency forward
    Show answer

    Correct answer: Borrow dollars now, convert them to the home currency and repay with the receipt

    The money market hedge converts the future receipt into a known home currency amount today.

    Report a mistake

More Strategic Professional topics