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SPECIMEN

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › SPECIMEN

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by John Moffat.
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  • March 4, 2021 at 5:26 am #613196
    draiells
    Member
    • Topics: 123
    • Replies: 141
    • ☆☆☆

    DOUBT 1: With regards to interest rate and purchase power parity theory the mcq says:

    Both theories hold in the long term rather than the short term.

    Now, my doubt is 1. I only read about PPP being true in the long term.
    2. if this was true for Interest rate parity then why do we depend on calculating FORWARDS which is for less than 1 year which means that we use it for short term and actually rely on it being true for short term.

    DOUBT 2. why have they used inflated cashflows for
    calculating ROCE, I used non inflated however the same conclusion is being reached. would it be correct?

    DOUBT 3.
    ”’ In a perfect capital market, the existence of dividend clienteles is irrelevant, since substituting one company for another will not incur any transaction costs. Since real-world capital markets are not perfect, however, the existence of dividend clienteles suggests that if Froste Co changes its dividend policy, its share price could be affected.”’

    I don’t understand the context in which transaction cost is being referred to? Is it that in a perfect market, the change in share prices would be like a compensating effect as in the same no. of shareholders disposing and buying the suited shares so price is constant but in real world shareholders would be reluctant to sell and buy because of transaction costs. hence share price will change

    March 4, 2021 at 5:48 am #613197
    draiells
    Member
    • Topics: 123
    • Replies: 141
    • ☆☆☆

    doub 3- q32 b Froste.

    doubt 2- VIp co 31 a

    March 4, 2021 at 8:37 am #613247
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    1. Forward rates are calculated (in real life as well as in exams) purely from the interest rates in the two countries. As I explain in my free lectures they are a service provided by banks to effectively enable companies to use money market hedging without needing to convert such large amounts.

    2. You have not written which question you are referring to.

    3. Yes. If a shareholder wants a different dividend policy then they can sell shares and invest the money in a different company. In a perfect world this would not cost anything to do, but in the real world it does cost because there are selling and buying transaction costs payable to the dealers.

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