P3 Exam Dumps - Risk Management

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Question # 9

A UK based company is considering an investment of GBÂ£1,000,000 in a project in the USA. It is anticipated that the following cash flows will arise from this project.

The cash flows will be either US$400,000 with a probability of 40% or US$700,000 with a probability of 60% for each of the next three years; remitted to the UKÂ at the end of each year.

Currently GBÂ£1.00 is worth US$1.30.

The expected inflation rates in the two countries over the next four years are 2% in the UK and 4% in the US.

Applying the Purchasing Power Parity Theory, which of the following represents the expected net present value of the project in GPÂ£ (to the nearest whole pound)?

GBÂ£287,639

GBÂ£391,640

GBÂ£(111,973)

GBÂ£554,047

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Question # 10

In-depth analysis showing theÂ identification and quantification of exposure to financial risk has become more accessible in recent years. Several varieties of analysis are now available.

WhichÂ of the followingÂ statementsÂ are true?

Value at risk analysis, which has become available through increased computing power, is now easier to implement and can cater for extreme market conditions.

Monte Carlo analysis is a modelling technique which can be applied to financial analysis,Â allowing thousands of variables to be integrated together to show standard behaviours and outlier abnormalities requiring detailed understanding in a 'what if?' environment.

Sensitivity analysis involves checking the performance of a financial risk model against the various interrelationships between the different input variables in the model.

Simulation, which is becoming available through standard computing packages, is complex to implement but dynamic and adaptable to cater for different assumptions.

Regression analysis is easy to understand and implement, and based on future expectations.

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Question # 11

HJK is a publishing company that employs several hundred staff A member of the company's IT Security Department contacted 30 members of HJK's staff selected at random, and told each one that his or her computer appeared to be infected with a virus The staff members were asked to provide their login details and corporate passwords so that IT Security could remove the virus remotely A total of six members of staff provided this information.

Which TWO of the following statements are correct?

HJK's entire staff should be informed of the investigation and of the disappointing fact that six members of staff handed over their logins and passwords

The investigation should be repeated in the future on a different sample of staff, using other reasons for asking for logins and passwords

HJK's response should be limited to briefing the six staff members on their error and ensuring that they change their passwords.

It was acceptable for the staff to surrender their details because the request had actually been made by members of HJK's IT Security Department.

It was unethical for HJK's IT Security Department to contact staff in this manner, lying about the suspected presence of a virus in order to provoke a response.

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Question # 12

Will owns $400,000 of shares in Company X.

Company X has a daily volatility of 1% of its share price.

Calculate the 28 day value at risk that shows the most Will can expect to lose during a 28 day period.

(Will wishes to be 90% certain that the actual loss in any month will be less than your predicted figure).

Give your answer to the nearest $000.

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Question # 13

Which THREE of the following form part of the role of Internal Audit?

Working with operational management teams to help identify risks to the business.

Working with operational management teams to devise new controls to help minimise risk to the business.

Providing training to operational management on the identification of risk

Implementing internal controls which address the key business risks identified by the risk management team

Carrying out special investigations of risk.

Monitoring the effectiveness of controls implemented by operational management

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Question # 14

AZX sells electrical components.

AZX's annual turnover is S24 million. Half of all sales are on 30 days' (1 month) credit

5% of credit sales have to be written off as unrecovered debt

25% of such write off is subsequently recovered through debt collection and legal action.

What is the expected loss each year due to credit risk?

$900,000

$600,000

51,200,000

S450,000

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Question # 15

M, a manufacturing company, has had some problems with defects in one of the main productsÂ itÂ produces. This product has been made by the company for many years and is very profitable. Last monthÂ itÂ had over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability.

Which of the following controls could M introduce to reduce defects and also increase profitability?

M could increase the number of quality control staff.

M could introduce a procedure where quality control staff sign a form at the end of each dayÂ to say they have examined 1 in 10 products for defects and they are satisfied with the quality.

The production director could examine one in every 10 products and sign a form to say they are satisfactory.

M could service machinery at least once a month as recommended by the machinery supplier.

M could check all employees qualifications to ensure they are qualified for their jobs.

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Question # 16

A US company has to pay Â£500,000 for a new machine.

You have the following information on currencies.

EURÂ 1 = Â£1.2300

EUR 1Â = USDÂ 1.6200

What is the cost of the machine in USD?

Give your answer to the nearest $.

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