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CIMAPRA19-F03-1 Exam - Topic 4 Question 129 Discussion

Company AAB is located in Country A with the A$ as its functional currency It plans to grow by acquisition and has identified Company BBA as a potential takeover candidate Company BBA is located in Country B with the BS as its functional currency.The directors of Company AAB are concerned about foreign currency risk if the acquisition goes aheadWhich of the following will be most effective in reducing Company AAB's exposure to translation risk if the acquisition is successful1?
D) Using forward contracts to fix the exchange rate between the AS and the B$
A) Financing the acquisition with equity in A$'s.
B) Setting up a mufti-currency bank account to net-off receipts and payments
C) Financing the acquisition with borrowings in BS's

CIMAPRA19-F03-1 Exam - Topic 4 Question 129 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 129
Topic #: 4
[All CIMAPRA19-F03-1 Questions]

Company AAB is located in Country A with the A$ as its functional currency It plans to grow by acquisition and has identified Company BBA as a potential takeover candidate Company BBA is located in Country B with the BS as its functional currency.

The directors of Company AAB are concerned about foreign currency risk if the acquisition goes ahead

Which of the following will be most effective in reducing Company AAB's exposure to translation risk if the acquisition is successful1?

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Suggested Answer: D

by Adria at Jul 21, 2026, 04:02 AM

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Wilbert
3 days ago
I prefer A. Using equity avoids debt and currency issues.
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Chandra
9 days ago
I think D is the best option. Forward contracts can lock in rates.
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Jina
14 days ago
C) Borrowing in BS's sounds risky to me!
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Vince
19 days ago
B) Multi-currency accounts are useful, but not the best option here.
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Pamella
24 days ago
Wait, can forward contracts really cover all risks?
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Larae
29 days ago
D) Totally agree, forward contracts are the way to go!
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Carla
1 month ago
A) Financing with equity in A$ could help!
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Craig
1 month ago
Setting up a multi-currency account sounds like a good idea, but I’m not sure if it really addresses translation risk specifically.
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Scot
1 month ago
I feel like financing with equity in A$ might reduce risk, but I wonder if it’s the most effective compared to the other options.
upvoted 0 times
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Werner
2 months ago
I think using forward contracts could be effective since they can lock in exchange rates, but I’m not completely confident about how they work in this context.
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German
2 months ago
I remember we discussed translation risk in class, but I'm not entirely sure which option would be the best for Company AAB.
upvoted 0 times
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