CIMA Risk Management (CIMAPRA19-P03-1) Free Practice Test
Question 1
An electricity company owns and operates a nuclear power station located ten miles from a large city. A recent and very extensive engineering examination of the power station concludes with the estimate that the probability of a major nuclear disaster within the next 20 years is 0.2%.
Which of the following best explains the relevance of quantifying the risk in that way?
Which of the following best explains the relevance of quantifying the risk in that way?
Correct Answer: D
Question 2
A UK manufacturing company has simultaneously:
* purchased a put option to sell USD 1million at an exercise price of GBP1.00 = USD1.65
* sold a call option that grants the option holder the right to buy USD 1million at a price of GBP1.00 = USD1.61 (this option has the same maturity date as the put).
Which of the following is a valid explanation for entering into these option positions?
* purchased a put option to sell USD 1million at an exercise price of GBP1.00 = USD1.65
* sold a call option that grants the option holder the right to buy USD 1million at a price of GBP1.00 = USD1.61 (this option has the same maturity date as the put).
Which of the following is a valid explanation for entering into these option positions?
Correct Answer: B
Question 3
R is a manufacturer of biscuits. The market for biscuits is extremely competitive with many companies competing for contracts with large supermarkets. The intensity of the competition means that prices are kept low; and the buyers can demand higher levels of quality, and greater flexibility in supply arrangements.
Which of the following represent ways that the use of an Information System could help R to win and retain supermarket contracts in such a competitive market?
Which of the following represent ways that the use of an Information System could help R to win and retain supermarket contracts in such a competitive market?
Correct Answer: A,C,E
Question 4
Multinational companies have a variety of methods by which to manage currency risk.
Select ALL internal hedging methods from the following list.
Select ALL internal hedging methods from the following list.
Correct Answer: A,C,E,F
Question 5
Which of the following will increase the value of a call option?
Correct Answer: A
Question 6
G plc has decided to move its production plant to overseas Country
The Production Director has identified that there are some political risks in moving to Country A.
Match the methods of reducing the political risks associated with the move to Country A with the corresponding risks.
The Production Director has identified that there are some political risks in moving to Country A.
Match the methods of reducing the political risks associated with the move to Country A with the corresponding risks.
Correct Answer:
Question 7
Which of the following actions would breach CIMA's Code of Ethics for Professional Accountants?
Correct Answer: A,B,E
Question 8
Company directors who exercise executive share options generally resell the shares immediately, rather than holding them Which of the following best explains this behavior?
Correct Answer: D
Question 9
MNB is a multinational IT company with headquarters in Asia and with operations in all continents.
MNB is attempting to expand its operations in Europe. This is seen as a major challenge as the European market is very well developed and highly competitive.
MNB develops and manufactures its own products. Parts and assemblies are sourced across Asia, America and Europe. These are sometimes purchased locally as a condition of a contract, but MNB aims to include as much of its own equipment as possible. Transfer prices between MNB's subsidiaries can be set in YEN, USD, EURO, GBP. Transfer prices are revised every month in line with production times as most goods are made on short order with sales cycles running at 3-4 months.
What types of risk are being presented here?
MNB is attempting to expand its operations in Europe. This is seen as a major challenge as the European market is very well developed and highly competitive.
MNB develops and manufactures its own products. Parts and assemblies are sourced across Asia, America and Europe. These are sometimes purchased locally as a condition of a contract, but MNB aims to include as much of its own equipment as possible. Transfer prices between MNB's subsidiaries can be set in YEN, USD, EURO, GBP. Transfer prices are revised every month in line with production times as most goods are made on short order with sales cycles running at 3-4 months.
What types of risk are being presented here?
Correct Answer: B,D,E
Question 10
TLY sell building materials such as bricks sacks of concrete and paving slabs to builders Materials are kept in a large yard Customer orders are fulfilled by a team of 30 employees who use forklift trucks to move sold items to the loading bay, from where they are loaded onto lornes for dispatch to the customer The sales office prepares dispatch notes, which are used by the yard employees to identify the items that have been ordered Which TWO of the following controls would be cost-effective ways to prevent the theft of inventory by TLY's staff?
Correct Answer: B,E
Question 11
H manufactures and sells healthy dietary supplements. The company recruits individuals as part-time agents to sell its products to friends and colleagues. These agents are required to buy H's products and to resell them at a small mark-up.
For a fee, H will provide agents with training in persuasive selling techniques. Agents who pass exams at the conclusion of this training can become distributors. Distributors buy bulk quantities of H's products at a discount and can recruit their own sales agents. Those agents can also take training and can recruit agents of their own.
At what stage does H stop being a legitimate business and become a pyramid selling fraud?
For a fee, H will provide agents with training in persuasive selling techniques. Agents who pass exams at the conclusion of this training can become distributors. Distributors buy bulk quantities of H's products at a discount and can recruit their own sales agents. Those agents can also take training and can recruit agents of their own.
At what stage does H stop being a legitimate business and become a pyramid selling fraud?
Correct Answer: A
Question 12
A project has been evaluated on the basis that it will cost $14 million and will have a net present value of $2.3 million.
The project has commenced and $3 million of the initial $14 million has been invested. A problem has been discovered that will cost an additional $2.5 million to rectify. The $2.5 million will be payable immediately.
What is the NPV of continuing with this project?
The project has commenced and $3 million of the initial $14 million has been invested. A problem has been discovered that will cost an additional $2.5 million to rectify. The $2.5 million will be payable immediately.
What is the NPV of continuing with this project?
Correct Answer: D
Question 13
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?
What does this incident say about the control environment within that factory?
Correct Answer: B,C,E
Question 14
A junior sales clerk at BCD, a wholesale jewellers, received an email which appeared to be from a well known parcel delivery company informing her that a delivery had been attempted outside office hours and had consequently failed She was asked to click on a link and complete some seemingly innocent but logical questions to effect the delivery on the next day She thought no more about it but was very surprised the next month to be awarded salesperson of the month as her sales had doubled Unfortunately, on investigation it was found that this was as a result of several fraudulent orders for high-value items that had seemingly been placed by an existing customer but delivered to a new address, which turned out to be a temporary box number The existing customer's credit card had been fraudulently charged for these orders Which of the following types of cyber-attack had the sales clerk been a victim of?
Correct Answer: C
Question 15
CVB is a consulting firm that occupies a large office with many individual staff offices Staff access the corporate network through a wired network AM work files and company emails are accessed through this network CVB is upgrading its office heating system At present, each room in the building has a simple, mechanical thermostat that can be used to regulate the heating CVB plans to install smart thermostats in each room These will make it possible to reduce heating costs by monitoring room temperatures centrally, using software that will be installed on the corporate network It would be expensive to connect the thermostats to CVB's existing wired network but it would be possible to connect a wireless router to the network so that CVB could install wireless smart thermostats instead The software on the network's server could then monitor and control the thermostats via the Wi-Fi connection that would be created by the wireless router.
Which TWO of the following statements are correct?
Which TWO of the following statements are correct?
Correct Answer: D,E