CIPS Exam L5M2 Topic 1 Question 20 Discussion

Actual exam question for CIPS's L5M2 exam

Question #: 20
Topic #: 1

[All L5M2 Questions]

Leo LLP is a company which sources materials internationally, and then sells these on nationally at a small margin. Leo LLP has noted that there is a risk of exchange rate fluctuations making their purchases unviable. The CFO has declared that the only way to mitigate this risk is via hedging and that they should look at price fixing. is this correct?

Ayes- hedging is the only solution to mitigate the risk of adverse price movements

Byes- this reduces the risk to 0

Cno- Leo LLP could do nothing and increase its prices instead

Dno- Leo LLP can take out insurance to mitigate this risk

Show Suggested Answer

Suggested Answer: B

The correct answers are as follows:

Cashflow issues can lead to serious financial problems and the company going bust. Therefore this risk must be treated.

by Raylene at Oct 07, 2023, 02:04 AM

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Reuben

10 days ago

But what about taking out insurance? Wouldn't that also be a good option to consider?

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Latonia

11 days ago

I agree with Maia, hedging can help protect Leo LLP from exchange rate fluctuations.

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Maia

17 days ago

I think the CFO is right, hedging is the best way to mitigate the risk.

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