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1. what factors determine the amount required for working capital
2. how can a company manage the foreighn working capital risks
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Can u please put some light on the PPPT & IRPT formulas??
How much percentage marks does the F9 exam carry from the FOREIGN EXCHANGE RISK and INTERET RATE RISK part?You cannot be asked to calculate how much working capital is required. It depends on the type of business – for example the level of receivables depends on how much credit is given to customers, and different businesses give different credit (because if competitors give credit then they will need to because otherwise they would risk losing business)
Foreign working capital would only be relevant if you had a foreign branch or subsidiary, and the risks would be either translation risk (converting for the accounts at the end of the year) or economic risk (such as the fact that might be more risk of irrecoverable debts). You are not required to discuss managing either of these risks for F9 – only transaction risk which is when money is being transferred to or from the home country.There are many factors that effect the exchange rate. However, the relative inflation rates in the two countries is one factor, and the relative interest rates is another.
These can both be used to try and forecast a future exchange rate using the formulae on the formula sheet. If you want to understand where the formulas come from, then look at Chapter 22 of the Course Notes on this website.Every F9 exam is different – there is not always a foreign exchange risk question and so it can be anything from 0% to 25% of the exam! However it is time that he did have a full foreign exchange question.
Interest rate risk is rarely asked (and can only be writing – not numbers). If it is asked then it is very unlikely to be worth more than 10 marks as part of a question.
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