CIMA F3 Exam With Confidence Using Practice Dumps

A. Any opportunity to benefit from future exchange rate movements is lost.

True – a money market hedge locks in the effective exchange rate now, so you remove both downside risk and upside potential.

B. It can be tailored to match the size of the payment.

True – you can structure the borrowing/lending and FX transaction to exactly match the foreign currency amount due.

C. It manages transaction risk.

True – transaction risk (uncertainty in the home currency value of a known future foreign-currency cash flow) is what a money market hedge directly addresses.

D. It offers a significantly better outcome than a forward contract.

False – under interest rate parity, a money market hedge and a forward contract should give similar effective rates (ignoring spreads and costs).

E. It avoids the need to find immediate finance.

False – for a payable, you normally borrow or use cash now as part of the hedge, so it does not avoid immediate financing; it actually requires it.

✅ Answer to Q29: A, B, C

The company needs to raise $40 million via a rights issue.

Current share price = $10

Rights issue at a 20% discount, so issue price =

10×(1−0.20)=10×0.8=$810 \times (1 - 0.20) = 10 \times 0.8 = \$810×(1−0.20)=10×0.8=$8

Number of new shares needed:

New shares=40m8=5 million shares\text{New shares} = \frac{40\text{m}}{8} = 5\text{ million shares}New shares=840m​=5 million shares

There are currently 20 million shares in issue, so the rights issue ratio is:

New sharesExisting shares=520=14\frac{\text{New shares}}{\text{Existing shares}} = \frac{5}{20} = \frac{1}{4}Existing sharesNew shares​=205​=41​

So, shareholders will receive 1 new share for every 4 existing shares.

IFRS 7 requires detailed disclosures about financial instruments and risk management, including currency risk, sensitivity analysis, and how those risks are managed. When these are published for the first time, investors may learn new information about:

The extent of US$ exposure (40% export sales), and

The quality of risk management (hedging, matching, etc.).

Efficient market theory (covered in F3) says prices adjust to new, relevant information. That new information could make investors more confident (if risks are well managed) or more concerned (if risks are high and poorly managed). So the share price could either increase or decrease, depending on the market’s reaction.

That matches option D.

Options A and C assume a one-way direction (always up or always down), which is unrealistic. B is wrong because segmental analysis does not normally give the same detailed, risk-focused disclosure as IFRS 7.