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CIMAPRA19-P03-1 Exam - Topic 4 Question 26 Discussion

Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA)as a hedging instrument. The company treasurer has advised that a short-term interest rate (STIR)future would be better.Which of the following is true of an STIR?
B) A STIR is flexible and the position can be closed quickly and easily. and C) A STIR must be kept for the whole duration of the contract.
A) A STIR can be tailored to the exact needs of the company.
D) If interest rates have gone down the price of the future will have fallen.

CIMAPRA19-P03-1 Exam - Topic 4 Question 26 Discussion

Actual exam question for CIMA's CIMAPRA19-P03-1 exam
Question #: 26
Topic #: 4
[All CIMAPRA19-P03-1 Questions]

Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA)as a hedging instrument. The company treasurer has advised that a short-term interest rate (STIR)future would be better.

Which of the following is true of an STIR?

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Suggested Answer: B, C, E

by Dean at Mar 28, 2023, 02:25 PM

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Hildred
10 months ago
I think keeping a STIR for the whole duration is a myth.
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Cristal
10 months ago
If rates drop, the future price does fall, that's true.
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Iesha
10 months ago
Wait, can you really close a STIR position that easily?
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Tegan
11 months ago
I disagree, FRAs can be tailored too.
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Erick
11 months ago
A STIR is definitely more flexible!
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Tijuana
11 months ago
I recall that if interest rates drop, it affects the pricing of futures, but I can't remember if that specifically means the price of the future will fall.
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Roosevelt
11 months ago
I feel like I studied that STIRs can be held for a specific duration, but I'm not certain if they must be kept for the whole contract.
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Eugene
11 months ago
I think option B sounds right because STIRs are often traded on exchanges, making them easier to close out compared to other instruments.
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Ronnie
11 months ago
I remember that STIRs are generally more standardized, so I'm not sure if they can be tailored exactly to a company's needs.
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Francine
11 months ago
Okay, let me walk through this step-by-step. Punishment can lead to undesirable emotions, aggressive behavior, or the punisher becoming aversive. But it's less likely to produce a more appropriate replacement behavior. I'll go with C.
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Jenelle
11 months ago
This seems like a straightforward question about insurance terminology. I'll read through the options carefully and choose the one that best fits the prompt.
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Stevie
11 months ago
This looks straightforward. I'd go with Option C to update Tia's name to Kimberly.
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Margot
11 months ago
Hmm, this looks like a tricky one. I'll need to carefully review the service protection limits and think about which metrics would be most relevant to ensure the API conforms to those limits.
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Jaleesa
1 year ago
Hmm, I'm not sure about this one. Maybe I should just ask the treasurer to explain the differences between FRAs and STIR futures in simple terms. Accountants aren't known for their finance skills, you know.
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Boris
1 year ago
User 3: That's true, a STIR is flexible and the position can be closed quickly and easily.
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Avery
1 year ago
User 2: A STIR can be tailored to the exact needs of the company.
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Reita
1 year ago
User 1: Maybe you should ask the treasurer for more information.
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Raylene
1 year ago
Wait, did the company treasurer actually suggest a STIR future? Sounds like they're trying to get Zia to lose money on the trade. I'd double-check that advice.
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Vi
1 year ago
C) A STIR must be kept for the whole duration of the contract.
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Mabelle
1 year ago
B) A STIR is flexible and the position can be closed quickly and easily.
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Tiffiny
1 year ago
A) A STIR can be tailored to the exact needs of the company.
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Marge
1 year ago
Option D is correct. If interest rates have gone down, the price of the future will have fallen, allowing me to profit from the hedging position.
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Lai
1 year ago
D) If interest rates have gone down the price of the future will have fallen.
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Thersa
1 year ago
B) A STIR is flexible and the position can be closed quickly and easily.
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Izetta
1 year ago
A) A STIR can be tailored to the exact needs of the company.
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Carlton
1 year ago
I think option B is correct. STIR futures are flexible and can be closed quickly, unlike an FRA which is tailored to specific needs.
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Cherry
1 year ago
I agree with Talia, B) A STIR being flexible is important for managing risk effectively.
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Talia
1 year ago
I disagree, I believe B) A STIR is flexible and the position can be closed quickly and easily.
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Clarence
1 year ago
I think A) A STIR can be tailored to the exact needs of the company.
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