F3 Exam Dumps : Financial Strategy

Vertical integration means moving up or down the value chain (suppliers or distributors), not acquiring similar producers (horizontal integration) or unrelated accessory businesses. Buying a listed international logistics firm brings distribution in-house and so is the clearest example of vertical integration that could improve margins.

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

Current:

Revenue = $450m at $2.50/kWh → units = 450 / 2.5 = 180m kWh

Costs = $250m → Profit = $200m

After cap: price = $2.00, demand up 15%:

New volume = 180 × 1.15 = 207m kWh

New revenue = 207 × 2.00 = $414m

Costs unchanged = $250m → New profit = 414 − 250 = $164m

Answer: B. $164.00 million profit