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

Actual exam question for CIMA's CIMAPRO19-P03-1 exam

Question #: 58
Topic #: 5

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?

AV$4.628 million

BV$5.684 million

CV$4.444 million

DV$5.5 million

Show Suggested Answer

Suggested Answer: B, C, D

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

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Brock

6 months ago

Not sure about these calculations, feels off.

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Katina

6 months ago

Definitely going with option A, seems right to me!

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Salley

6 months ago

Wait, did the spot rate really change that much?

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Trinidad

7 months ago

I think the total cost is around V$5.5 million.

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Olga

7 months ago

The call option cost V$180,000.

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Selma

7 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

7 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

8 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

8 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

8 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

8 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

8 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

8 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

8 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

8 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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