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The exam was okay but too time pressured. I think if i would fail then it would be due to not being able to write due to time constraints.
The bond question is a bit similar to requirement b(i) of Conejo question (Q 48 BPP kit). What should be Kd when calculating WACC after the issue of new bond as both the bonds had different yield to maturity/returns required by bond holders?
I did not even have a chance to look at the other requirement of this question and thought someone at opentuition would comment on that. I assume the requirement related to difference between forex and currency swap was worth 12 marks? I wish I had 10 more minutes to complete that part of the question.
Forex swap actually ‘locks’ the rate at the start of the transaction and then the same rate applies at the end of the transaction so you are not exposed to currency rate fluctuations. Specially when you are dealing with a weak currency or investing/doing a project in a country whose currency is weaker or not easily available on foreign exchange markets. For e.g you invest money at To in a project at the spot rate at To then you would receive the profits at T4 for example at the same rate.
With currency swaps there are two parties involved. You borrow an amount in your currency from the bank in your country for the counter party and pay their interest. The counter party borrows an amount in their currency from the bank in their country and pays your interest. The principals amount and interest payments are exchanged between the counter parties. The objective is to save interest payments because it would be cheaper to get a loan in your currency in your country.
Question 40 Buryecs (part b) in bpp addresses both these areas.
I think there should also be a poll in here for the ACCA CBE platform. I think 80% + plus will choose hard or disaster but i hope ACCA are willing to improve the software based on our feed back. Just submitted my suggestions via the survey. I think ACCA should give students an option to either sit for the exam via CBE or paper based exam.
I think for the bond the market value was already calculated using the relevant spot yield curve for the year + Credit spread
For example
Time 1 – Interest – $7.5 * (1+Spot yield curve for 1 year bond + credit spread for that year)^-1
Time 2 – Interest – $7.5 * (1+Spot yield curve for 2 year bond + credit spread for that year)^-2
Etc etc. That gave market value or issue value of bond.
Then using you can repeat the same cashflows including the initial purchase of the bond at market value (thinking about things from the investors perspective.
But for the DCF do one at say 5% and one at say 10%, then plugging that IRR, I think gives you the YTM.
Agree completely with the time and hassle of CBE. Frustrating as I really liked the CBE function on the foundation level exams as my handwriting is poor. Especially as they aren’t as time pressured than AFM.
You save 30 seconds using an auto sum ON EXCEL, then spend 1 minute shuffling round the exhibits and word processor and spreadsheet because the screen is too small to show all relevant data.
Why they can’t either give you two screens or a copy of the questions on paper to help time pressure is beyond me.
I think the idea about the FOREX swaps and currency swaps is more to do with what type of question you are trying to hedge/what benefit you are trying to achieve.
I think the idea of the Forex swap is to hedge relatively short term (a year or less). Which could to hedge a future reciept or payment and involves swapping a principle with a counter party.
The currency swap still involves the principle swap with a counter party but is mainly set up to lower the cost of borrowing (using the estimation that a company co is likely to be able to borrow at a lower rate domestically than an overseas company will and vice versa.
These kind if swaps are usually used when financing a significant overseas project that might last years. Theyll essentially benefit financially from the swap due to paying lower interest.
So the currency swap is no use use to hedge a receipt in a few months. At least I think that’s the idea. That’s the sort of stuff I wrote about anyway, and recommended that a Forex swap would be much more beneficial and the currency swap would be a better fit to the expected expansion projects – not the future rupees receipt.
I dont think you needed to do any currency conversion to calculate the number of contracts needed. We were hedging a receipt of 202mR and the contract currency was in Rupees.
If i recall correctly, the premium on the option may have needed converting.
I think thats the point. Its fine on a 27 inch monitor, you don’t get a 27 inch monitor in the real exam at the Pearson Vue UK locations anyway.
To obtain the contract, all to do was divide 202m by 5m. Then we had to find the gain or loss on futures but the currency was denominated in Indian Rs per 1 euro, after finding the gain, I think I should have converted the loss in US dollar using the predicted spot rate (which is the current futures price) then multiply by no of contracts and contract size, another way of doing this is multiplying the loss in indian rupees x no of contract x contract size then divide the amount obtained by futures price or predicted spot rate (which are the same). I had no clue how to work out the amound underhedged.
202mR/5m was 40.4 contracts, rounded down to 40 contracts.
40 x 5m contracts was 200m.
Therefore amount unhedged was 2mR which was hedged using FRA.
If I’m not wrong, there was a short note in OT notes (or maybe in BPP) where they explained that forex swaps are for very short term, like one week. So basing on this I recommended to use currency swaps.
Thank you, make sense now. I’ve never seen a question examined in that fashion before, thats why I got confused, I’ve learnt futures in a methodical way without understanding the underlying logic that well. I did well on theory, hope I secure a pass.
I guess the cost of debt should be weighted average of total interest /total market value ?
difference between forex and currency swap was 6 marks,another one asking benefit of seperate treasury department , 6 marks@accboy729 thank you
@accboy729 yes i calculated based on weighted average and the proportion which i used was related to non currency assets however i hardly mentioned any assumptions in my answer because of lack of time…
The marks were actually there for the taking, but a little twist in Q1 (the second bond and all those stuff with it) did a lot of havoc.
hi, may i know how much of proportion of MVe and MVd in question 1? because i feel like i calculate wrongly for the MVe and MVd. it make the Wacc no much different
Generally the exam was not that difficult but i kept on making some stupid mistakes especially for foreign NPV calculation i definitely got a zero because of incorrect rounding. I thought i was rounding the figures to millions whilst i was rounding them further to billions and ended up mixing millions and billions (revenue and costs in billions) , (investments , WK, TAD, RV in millions) and there was no tax at the end of the day because the TAD was so substantial compared to the contribution.
For book value of bonds i could have multiplied 0.45m bonds by $100 to get $45m but i took 0.45m as it was when calculating Vd. I realized it after i was almost done and time could not allow me to start all over again so i began to cancel and correcting every affected figure such that my whole answer was no longer presentable. I doubt if i am going to get the professional marks.
Also i found it quite difficult to discuss the results for the 10 mark question as they did not make any logical sense from what i had studied which means my calculations were also wrong.
AFM exam was okay. Preparatory to the exam, I was already palpitating when I seem not to be able to lift my hands gleefully on the specimen exam questions within the time allowed.
But glancing through the questions, I think God made it simple for me this time around!
I have read all of our comments; we all faced the same dilemma; perhaps made same mistakes, but generally the exam was okay.I expect markers will be leniet with marks and give us COVID incentive marking
Acca is not cheap. For the amount of money we spend I think we deserve a better spreadsheet software.
It totally sucks – you can’t even cut and paste without losing formulae and references.
It slows me down
Was it even possible to complete the AFM paper in CBE mode? I did not attempt 29 marks, which was the second best attempt in terms of marks in my practice of 4 papers and the final exam.
Although I feel confident about the part I wrote and hopefully will pass but I would like to know from others if it was possible to complete CBE exam for AFM?
I agree. The functionality of the spreadsheet shocked me e.g. drag and hold over cells containing numbers in excel produces a total on bottom right of screenbar. Not so in CBE. And trying to reference the question when it is in 5 different parts is a nightmare, unless you have a massive screen, and mine was the size of an average laptop.
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