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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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Werner
15 hours 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
6 days ago
I remember we discussed translation risk in class, but I'm not entirely sure which option would be the best for Company AAB.
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