Foreign Exchange Risk

This topic has 5 replies, 2 voices, and was last updated 8 years ago by John Moffat.

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November 26, 2013 at 2:11 pm #147913
mahoysam
- Topics: 37
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Hi Mr John,

I just want to ask, is there a possibility of getting a whole 25 mark question about Foreign Exchange Risk ? Because that would be a nightmare!

I mean, I will make sure to be able to write about the whole topic (i have seen included in 2013 tips the interest rate risk) I will also check the calculations in order to be able to fairly attempt a part of a question (if he asks calculations) but since I don’t feel it is as important as the other topics, I don’t want to waste time on it practicing so much specially that I really don’t have time, I am attempting 3 exams this sitting, so I think I better be using this time practicing the questions I know are guaranteed in the exam like investment appraisal, cost of capital and so on.

Please let me know what you think and wish me luck! I have solved June 2013 exam and I wish it was the one to be asked in December, it is fairly good, kind of easy!! I hope the examiner does not have the habit of giving an easy exam followed by a difficult one!

Thank you!

Maha
November 27, 2013 at 10:32 pm #148131
John Moffat
Keymaster
- Topics: 57
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Foreign exchange risk management will only ever be part of a question – not the whole 25 marks.
(I actually think it is not so likely for this December, but obviously I might be wrong).

Interest rate management will also never be a whole 25 marks – only one part of a question.

Also, you cannot be asked for calculation on interest rate management. You can only be expected to write about the methods available for reducing the risk.

(and good luck in the exams – I am sure you will do well 🙂 )
November 28, 2013 at 6:55 am #148172
mahoysam
- Topics: 37
- Replies: 140
Thanks a lot Mr John this is very reassuring! Also thank you for your wishes and if I do do well then it is because you are a wonderful teacher! 🙂

I have another question regarding Investment appraisal, I wonder if I need to open a new topic or if I can just post it here, if the topic will be closed, I will ask it somewhere else, anyways, here it is, this is copied from one exam (Dec 2012),:

((Fixed infrastructure costs of $1,500,000 per year in current price terms would be incurred. These would not relate to any specific house, but would be for the provision of new roads, gardens, drainage and utilities. Infrastructure cost.))

I thought this means that F cost is not related to the project and therefore I thought the correct treatment is to exclude it but they didn’t! Just to be clear, if there are an indication in the question that a cash flow is not related to the project, shouldn’t I exclude it?

Thanks, Maha
November 28, 2013 at 8:20 am #148191
John Moffat
Keymaster
- Topics: 57
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If cash flows are not related to the project, then certainly you exclude it.

However in this example, even though it does not relate to any one specific house, it does relate to the project (if they build the houses then they will need to provide new roads etc.) and so it should be included.
November 28, 2013 at 3:03 pm #148299
mahoysam
- Topics: 37
- Replies: 140
Thank you Mr John 🙂

I think I need to read more carefully then to identify whether they are related to the whole project or not!

Maha
November 28, 2013 at 3:50 pm #148305
John Moffat
Keymaster
- Topics: 57
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You are welcome 🙂
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