Free CIMA CIMAPRO19-F03-1-ENG Exam Questions

Question 1

A company is concerned that a high proportion of its debt portfolio consists of variable rate finance with an

interest rate of LIBOR ' 1 .0%.

It is considering using an interest rate swap to reduce interest rate risk out is concerned about additional

finance cost this might create.

A bank has quoted swap rates of 3% 3.5% against LIBOR.

Is an interest rate swap likely to be beneficial to the company at current LIBOR rates?

A : , because it would be cheaper to repay variable rate finance aid enter into new fixed rate finance than to enter into an interest rate swap

B : , because it will have lower interest rate risk and interest cost remains the same.

C : , because interest cost will decrease with the interest rate swap in place.

D : , because interest cost will increase with the interest rate swap in place.

Answer: B

Question 2

A company based in Country D, whose currency is the D$, has an objective of maintaining an operating profit

margin of at least 10?ch year.

Relevant data:

• The company makes sales to Country E whose currency is the E$. It also makes sales to Country F whose

currency is the F$.

• All purchases are from Country G whose currency is the G$.

• The settlement of all transactions is in the currency of the customer or supplier.

Which of the following changes would be most likely to help the company achieve its objective?

A : D$ strengthens against the E$ over time.

B : F$ weakens against the D$ over time.

C : D$ strengthens against the G$ over time.

D : D$ weakens against the G$ over time.

Answer: C

Question 3

M is an accountant who wishes to take out a forward rate agreement as a hedging instrument but the company treasurer has advised that a short-term interest rate future would be a better option. Which of the following is true of a short-term interest rate future?

A : can be tailored to the exact reeds of the company.

B : interest rates have gone down the price of the future will have fallen.

C : must be kept for ne whole duration of the contract

D : date is flexible and the position can be closed quickly and easily.

Answer: C

Question 4

A listed company in a high growth industry, where innovation is a key driver of success has always operated a

residual dividend policy, resulting in volatility in dividends due to periodic significant investments in research

and development.

The company has recently come under pressure from some investors to change its dividend policy so that

shareholders receive a consistent growing dividend. In addition, they suggested that the company should use

more debt finance.

If the suggested change is made to the financial policies, which THREE of the following statements are true?

A : may give a signal to the market that the company is entering a period of stable growth.

B : ere may be a change to the shareholder profile due to 'the clientele effect'.

C : directors will not have to take shareholder dividend preferences into consideration in future.

D : tained earnings have a lower cost than debt finance.

E : company's financial risk will increase due to its increased use of debt finance.

Answer: A,B

Question 5

A listed company is financed by debt and equity.

If it increases the proportion of debt in its capital structure it would be in danger of breaching a debt covenant

imposed by one of its lenders.

The following data is relevant:

The company now requires $800 million additional funding for a major expansion programme.

Which of the following is the most appropriate as a source of finance for this expansion programme?

A : tained earnings

B : ivate placement of a bond

C : ghts issue

D : nk overdraft

Answer: C