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The paper provides spot rate, inflation context, and available hedging instruments (currency futures/options and over-the-counter forwards and swaps), plus an alternative annuity-style loan repayment approach. It also introduces a branching proposal and the associated agency concerns for risk management.",{"@graph":14,"@context":72},[15,34,55],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/exam/","Exam",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/advanced-financial-management-specimen-exam-september-2018/661465/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":49,"encodingFormat":47,"isAccessibleForFree":50,"interactionStatistic":51},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/advanced-financial-management-specimen-exam-september-2018/661465.png","ImageObject",300,407,{"name":42,"@type":43},"McQueen","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-10-30","2026-10-28",true,{"@type":52,"interactionType":53,"userInteractionCount":22},"InteractionCounter",{"@type":54},"ViewAction",{"@type":56,"mainEntity":57},"FAQPage",[58,64,68],{"name":59,"@type":60,"acceptedAnswer":61},"How is the exam question paper divided, and which questions are compulsory?","Question",{"text":62,"@type":63},"The paper has two sections: Section A contains one compulsory question, and Section B contains two compulsory questions.","Answer",{"name":65,"@type":60,"acceptedAnswer":66},"What currency exposures must the treasury function manage under Proposal One?",{"text":67,"@type":63},"It must manage a US dollar payment due in four months and a four-year CHF loan. 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It imports tea, coffee and cocoa from countries around the world, and sells its blended products to supermarkets and large retailers worldwide. The company has production facilities located in two European ports where raw materials are brought for processing, and from where finished products are shipped out. All raw material purchases are paid for in US dollars (US$), while all sales are invoiced in Swiss Francs (CHF) .  \nUntil recently CMC Co had no intention of hedging its foreign currency exposures, interest rate exposures or commodity price fluctuations, and stated this intent in its annual report. However, after consultations with senior and middle managers, the company’s new board of directors (BoD) has been reviewing its risk management and operations strategies.  \nYou are a financial consultant hired by CMC Co to work on the following two proposals which have been put forward by the BoD for further consideration:  \nProposal one  \nSetting up a treasury function to manage the foreign currency and interest rate exposures (but not commodity price fluctuations) using derivative products. The treasury function would be headed by the finance director. The purchasing director, who initiated the idea of having a treasury function, was of the opinion that this would enable her management team to make better decisions. The finance director also supported the idea as he felt this would increase his influence on the BoD and strengthen his case for an increase in his remuneration.  \nIn order to assist in the further consideration of this proposal, the BoD wants you to use the following upcoming foreign currency and interest rate exposures to demonstrate how they would be managed by the treasury function:  \n(i) a payment of US$5,060,000 which is due in four months’ time; and  \n(ii) a four-year CHF60,000,000 loan taken out to part-fund the setting up of four branches (see proposal two below) . Interest will be payable on the loan at a fixed annual rate of 2·2% or a floating annual rate based on the yield curve rate plus 0·40% . The loan’s principal amount will be repayable in full at the end of the fourth year.  \nAdditional information relating to proposal one  \nThe current spot rate is US$1·0635 per CHF1 . The current annual inflation rate in the USA is three times higher than Switzerland.  \nThe following derivative products are available to CMC Co to manage the exposures of the US$ payment and the interest on the loan:  \nExchange-traded currency futures  \nContract size CHF125,000 price quotation: US$ per CHF1  \n3-month expiry 1·0647  \n6-month expiry 1·0659  \nExchange-traded currency options  \nContract size CHF125,000, exercise price quotation: US$ per CHF1, premium: cents per CHF1  \nCall Options Put Options  \nExercise price 3-month expiry 6-month expiry 3-month expiry 6-month expiry  \n1·06 1·87 2·75 1·41 2·16  \n1·07 1·34 2·22 1·88 2·63  \nIt can be assumed that futures and option contracts expire at the end of the month and transaction costs related to these can be ignored.  \nOver-the-counter products  \nIn addition to the exchange-traded products, Pecunia Bank is willing to offer the following over-the-counter derivative products to CMC Co:  \n(i) A forward rate between","cbCaiowdvcOuVwI6","https://ap.wps.com/l/cbCaiowdvcOuVwI6","pdf",507751,21,"English","# Section A\n## Compulsory question\n# Section B\n## Two compulsory questions\n# Key data and instruments\n## Spot rate and inflation assumptions\n## Exchange-traded currency futures\n## Exchange-traded currency options\n## Over-the-counter forwards and swaps\n## Alternative annuity loan repayment","[{\"question\":\"How is the exam question paper divided, and which questions are compulsory?\",\"answer\":\"The paper has two sections: Section A contains one compulsory question, and Section B contains two compulsory questions.\"},{\"question\":\"What currency exposures must the treasury function manage under Proposal One?\",\"answer\":\"It must manage a US dollar payment due in four months and a four-year CHF loan. The treasury proposal covers foreign currency and interest rate exposure but not commodity price fluctuations.\"},{\"question\":\"Which derivative products are available for managing the exposures in Proposal One?\",\"answer\":\"Available tools include exchange-traded currency futures and options for the US$ payment and loan interest, plus over-the-counter products such as a US$/CHF forward and an interest rate swap offered by Pecunia Bank.\"}]","Advanced Financial Management - Specimen Exam - September 2018 | PDF",53]