Free P3 Risk Management Exam CIMAPRO19-P03-1 Exam Practice Test

B is a company with a strong risk appetite.Which of the following are benefits of using the certainty equivalent method of capital investment appraisal in B's case?

• A high level of subjective judgment is required from the decision maker.
• It avoids the need for the investor to estimate an appropriate discount rate which reflects the risk of the project cash flows.
• By building a risk adjustment into the discount rate, it takes greater account of risk in later time periods.
• More risky projects are more likely to be accepted using this method of appraisal.
• The method produces the most appropriate results in cases where project cash flows do not increase in risk over time.

Will owns $400,000 of shares in Company X.Company X has a daily volatility of 1% of its share price.Calculate the 28 day value at risk that shows the most Will can expect to lose during a 28 day period.(Will wishes to be 90% certain that the actual loss in any month will be less than your predicted figure).Give your answer to the nearest $000.

Kis a manufacturing company. It has sourced new equipment from the US to equip a new production facility.It has to make a payment of USD1,000,000 in3 months' time.K's production manager needs to know whether it is cheaper to use a forward contract or a money market hedge.Current spot and forward exchange rates are as follows:Current mid-point money market rates (annual) are as follows:Ignoring taxation, which of the following statements is correct?

• The money market hedge saves GBP15,196
• The forward contract saves GBP2,629
• The money market hedge saves GBP32,078
• The forward contract saves GBP1,901

M, a manufacturing company, has had some problems with defects in one of the main productsitproduces. This product has been made by the company for many years and is very profitable. Last monthithad over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability.Which of the following controls could M introduce to reduce defects and also increase profitability?

• M could increase the number of quality control staff.
• M could introduce a procedure where quality control staff sign a form at the end of each dayto say they have examined 1 in 10 products for defects and they are satisfied with the quality.
• The production director could examine one in every 10 products and sign a form to say they are satisfactory.
• M could service machinery at least once a month as recommended by the machinery supplier.
• M could check all employees qualifications to ensure they are qualified for their jobs.

Which risks should be given the highest priority?

• Risks which have ahigh impact andhave a low likelihood of arising.
• Risks which have alow impact but which arise frequently.
• Risks which have a low impact and a low likelihood of arising.
• Risks which have a high impact and which may arise occasionally.

SDF has a variable rate loan of $100 million on which it is paying interest of LIBOR + 2%.SDF entered into a swap with CV bank to convert this to a fixed rate 7% loan. CV bank charges an annual commission of 0.3% for making this arrangement.Calculate the net payment from SDF to CV bank at the end of the first year if LIBOR was 3% throughout the year.Give your answer in $ million, to one decimal place.

P Ltd, a service company, is seeking to recruit engineers to work in its maintenance division. WhichTWOof the following suggestions will be most likely to help prevent fraud when recruiting the engineers?

• Checking that the engineers have previous experience in a similar business.
• Checking that the engineers do not belongto a union.
• Checking that the engineers have a professional engineering qualification.
• Taking up references from previous employers.
• Having a defined fraud policy statement that includes recruitment issues.

Which of the following statements concerning the use of balanced scorecards to measure divisional performance is correct?

• Dysfunctional behaviour is more difficult than under traditional reporting because a wide range of factors will be measured and reported.
• Dysfunctional behaviour is impossible because divisional managers are evaluated on so many different decisions.
• Contradictory and inconsistent targets prevent balanced scorecards being a useful tool for performance evaluation.
• The input for balanced scorecard reports comes from many sources so it is not possible to misrepresent performance.

The managers of a company are agents for the shareholderstasked with increasing shareholders' wealth. Which of the following will usually increase shareholders' wealth?

• Investing in projects with the shortest payback period.
• Investing in projects with positive net present value.
• Investing in projects with the greatest level of risk.
• Not paying a dividend for several years in order to invest innew projects.

The safety guard on a piece of equipment was broken. The factory manager suspended an operator who refused to operate the equipment until it was repaired.The factory manager paid another operator a bonus for operating the damaged equipment until the safety guard could be repaired.What does this incident say about the control environment within that factory?

• Management is not particularly concerned with managing risks.
• Employees will perceive that management does not care about health and safety risks.
• This factory's safety record is likely to be poor.
• Employees are motivated to maintain productivity.
• Management has a proportionate and considered attitude towards risk.