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CIMAPRO19-P03-1 Exam - Topic 5 Question 58 Discussion

VBN's home currency is the V$. On 1 January, VBN must make a payment of C$2 million on 31 March of that same year.On 1 January the spot exchange rate was V$1 = C$0.4.On 1 January VBN paid $180,000 for a call option to buy C$2 million for V$5.5 million on 31 March. VBN's cost of borrowing was 8% per year.On 31 March the spot rate was V$1 = C$0.45.What was the total cost, including the cost of the option, of settling the payable?
B) V$5.684 million and C) V$4.444 million and D) V$5.5 million
A) V$4.628 million

CIMAPRO19-P03-1 Exam - Topic 5 Question 58 Discussion

Actual exam question for CIMA's CIMAPRO19-P03-1 exam
Question #: 58
Topic #: 5
[All CIMAPRO19-P03-1 Questions]

VBN's home currency is the V$. On 1 January, VBN must make a payment of C$2 million on 31 March of that same year.

On 1 January the spot exchange rate was V$1 = C$0.4.

On 1 January VBN paid $180,000 for a call option to buy C$2 million for V$5.5 million on 31 March. VBN's cost of borrowing was 8% per year.

On 31 March the spot rate was V$1 = C$0.45.

What was the total cost, including the cost of the option, of settling the payable?

Show Suggested Answer Hide Answer
Suggested Answer: B, C, D

by Andra at Dec 08, 2023, 10:03 AM

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Brock
8 months ago
Not sure about these calculations, feels off.
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Katina
8 months ago
Definitely going with option A, seems right to me!
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Salley
8 months ago
Wait, did the spot rate really change that much?
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Trinidad
8 months ago
I think the total cost is around V$5.5 million.
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Olga
9 months ago
The call option cost V$180,000.
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Selma
9 months ago
I feel like I might have mixed up the calculations for the option and the borrowing cost. I need to double-check how those interact with the final payment.
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Vallie
9 months ago
If I recall correctly, we need to convert the C$2 million at the spot rate on 31 March, then add the option cost. I hope I got that right!
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Kendra
9 months ago
I think the total cost should include the option premium and the amount paid for the currency at the spot rate, but I’m a bit confused about how to calculate the final figure.
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Blair
9 months ago
I remember we practiced a similar question about options and exchange rates, but I'm not sure how to factor in the cost of borrowing here.
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Elroy
9 months ago
This seems pretty straightforward. I just need to do the math correctly and I'm confident I can get the right answer.
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Brent
9 months ago
I think I've got a good handle on this. I'll start by calculating the cost of the payable on 31 March, then add in the option cost. Should be straightforward.
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Earleen
9 months ago
Hmm, not sure I fully understand how to incorporate the call option into the total cost. I'll have to review the details carefully.
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Rebbeca
9 months ago
This looks like a tricky foreign exchange question. I'll need to carefully work through the calculations to get the right answer.
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Irene
10 months ago
Okay, let me think this through step-by-step. I need to figure out the total cost of settling the payable, including the option cost.
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Donte
10 months ago
I'm a little confused by the options. Does GDS really help with database failovers without requiring Data Guard Broker? I'll need to double-check that detail before answering.
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Jesusita
1 year ago
I wish they'd ask about something more exciting, like the latest celebrity gossip. This is just boring finance stuff.
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Melinda
1 year ago
I'm pretty sure it's C) V$4.444 million.
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Ora
1 year ago
No, I believe it's B) V$5.684 million.
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Willow
1 year ago
I think the answer is A) V$4.628 million.
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Stephanie
1 year ago
Okay, let's see... I just need to crunch the numbers and figure out the best option. No biggie, right? *sweats profusely*
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Nicholle
1 year ago
Ha! This is like a currency exchange puzzle. I bet the answer is hidden in all those numbers and dates.
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Ariel
1 year ago
User 3: The answer must be one of the options provided, let's do the math.
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Ben
1 year ago
User 2: Yes, we have to consider the spot exchange rates and the cost of the option.
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Daniel
1 year ago
User 1: I think we need to calculate the total cost including the option.
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Rima
1 year ago
Ugh, why do they always make these questions so complicated? I just want a simple, straightforward answer.
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Kris
1 year ago
Hmm, this question seems a bit tricky. I'll need to carefully calculate the exchange rates and the cost of the option to determine the total cost.
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Julian
1 year ago
User 2: Yes, we should consider the spot exchange rate and the cost of borrowing as well.
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Chun
1 year ago
User 1: I think we need to calculate the total cost including the cost of the option.
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Gayla
1 year ago
User 2: Yes, we should consider the spot exchange rates and the cost of borrowing as well.
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Beata
1 year ago
User 1: I think we need to calculate the total cost including the cost of the option.
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Maile
1 year ago
But the cost of the option was $180,000, so the total cost should be lower than that. That's why I chose A.
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Olive
1 year ago
I disagree, I believe the answer is B) V$5.684 million.
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Maile
1 year ago
I think the answer is A) V$4.628 million.
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