CIMA P3 Online Access

Risk Management Questions and Answers

Question 25

Multinational companies have a variety of methods by which to manage currency risk.

Select ALL internal hedging methods from the following list.

Options:

Leading and lagging

Invoice in home currency

Matching

Pooling

Money market hedge

Forward contracts

Question 26

In-depth analysis showing the identification and quantification of exposure to financial risk has become more accessible in recent years. Several varieties of analysis are now available.

Which of the following statements are true?

Options:

Value at risk analysis, which has become available through increased computing power, is now easier to implement and can cater for extreme market conditions.

Monte Carlo analysis is a modelling technique which can be applied to financial analysis, allowing thousands of variables to be integrated together to show standard behaviours and outlier abnormalities requiring detailed understanding in a 'what if?' environment.

Sensitivity analysis involves checking the performance of a financial risk model against the various interrelationships between the different input variables in the model.

Simulation, which is becoming available through standard computing packages, is complex to implement but dynamic and adaptable to cater for different assumptions.

Regression analysis is easy to understand and implement, and based on future expectations.

Question 27

Which method of quantifying risk exposure can be used to calculate the maximum loss on a portfolio occurring within a period of time with a given probability?

Options:

Value at Risk

Regression analysis

Simulation

Expected value

Question 28

Company H operates a fleet of lorries. The Internal Auditor recently conducted an investigation into the transport needs of the company. Their report recommended that the lorries be disposed of, the drivers made redundant, and the distribution of the company's products be outsourced.

The type of investigation carried out by the Internal Auditor is best described as a:

Options:

Compliance Audit

Economy Audit

Efficiency Audit

Effectiveness Audit

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Risk Management Questions and Answers

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