CIMA P3 Practice Test Guide

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Get Ready For The CIMA P3 Risk Management Exam
2021
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P3 shows how to identify, evaluate and manage
various risks thatcould adversely affect the
implementation of the organisationsstrategy. It
provides the competencies required to
analyse,evaluate and apply the techniques,
processes and internal controlsystems required
to manage risk. This insight is then used
tomanage the risks associated with both cash
flows and capitalinvestment decisions two
important areas of organisational lifefor which
the finance function is responsible.
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Self-belief and hard work will always earn you
success.
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Questions No 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? A. There is no
acceptable level of risk for a major nuclear
accident and so the probability has little
information value in itself. B. The probability
is so low as to be ignored. C. The directors
will be able to argue that they were not
negligent in the event of a major disaster within
the 20 year period. D. The calculation of a
precise probability demonstrates that the
engineers who conducted the inspection are
experts in their field. Answer A
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Question No 2 M is a listed company. It is
hoping to invest in a risky new venture. M has a
substantial amount of cash to invest in the
venture. M would have found it difficult to raise
new finance as it has a high level of gearing.
Which of the following statements about
stakeholders' conflicting interests are true? A.
M's shareholders would only be exposed to the
systematic risk from the investment in the new
venture. B. M's credit rating is likely to fall
as a result of this new venture. C. The
directors would only be exposed to the systematic
risk from the investment in the new venture. D.
M's diversification will mean less risk for the
shareholders. Answer A B
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Questions No 3 C Ltd is a private, family-owned
company which is hoping to become listed on a
recognised Stock Exchange within the next two
years. At the moment, the Board of Directors
comprises five directors four of whom are from
the founding family and all of whom are involved
in the day-to-day running of the business. The
remaining director obtained a seat on the Board
three years ago as a condition of an investment
by a venture capital fund. The Board meets in
half-day sessions once a fortnight and the Board
meetings are reasonably well run. All decisions
are taken by the Board as a whole. There are no
sub-committees. Which of the following steps
would it be appropriate for C Ltd to take in the
light of the proposed listing? A. Appoint enough
independent non-executive directors (NEDs) that
they make up at least 50 of the Board. B.
Appoint one of the NEDs as Chair of the Board. C.
Insist that the venture capital company director
be removed as he is not necessarily motivated to
act in the best interests of C Ltd. D. Set up at
least three sub-committees namely remuneration,
nomination, and audit committees. E. Ensure that
the current executive directors are given 10 year
contracts starting on the day the company is
floated, to ensure consistency and continuity in
the management of the company. F. Set up an
"agenda setting" sub-committee consisting of the
current executive directors to decide the agenda
for each Board meeting. Answer A B D
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Questions No 4 GHY is a listed company. Tom is
GHY's CEO and Peter is its non-executive Chair of
the Board. Tom and Peter both have substantial
relevant business and industrial experience and
both are believed to have considerable integrity.
Tom and Peter quickly developed a good working
relationship after Peter's appointment. They have
become close friends. Tom briefs Peter on every
aspect of the business. Tom and Peter jointly
agree the agenda for every board meeting and both
agree on the manner in which matters will be
presented to the board. Taking account of the
principles of good corporate governance, which of
the following statements is correct? A. It is
entirely appropriate that Tom and Peter have this
kind of relationship and both are acting in the
best interests of the company. B. Non-contentious
board meetings show how well Tom and Peter are
running the company and shows that the management
is cohesive. C. The relationship between Peter
and Tom may have a detrimental effect on company
decision making as the Board is not always being
informed about matters in an unbiased manner. D.
Since the non-executive chair clearly has a
significant role within this company there is
little danger that any individual will become
excessively dominant. Answer C
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Questions No 5 H has a floating rate loan that
it wishes to replace with a fixed rate. The cost
of the existing loan is LIBOR 4. H would have
to pay a fixed rate of 8 on a fixed rate loan.
H's bank has found a potential counterparty for a
swap arrangement. The counterparty wishes to
raise a variable rate loan. It would pay LIBOR
1 on a variable rate loan and 9 on a fixed
rate. The bank will require 10 of the savings
from the swap and H and the counterparty will
share the remaining saving equally. Calculate
H's effective rate of interest from this swap
arrangement. A. H would pay 6.2 B. H would pay
6 C. H would pay Libor 1 D. H would pay
6.4 Answer A
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