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CIPS L5M2 Exam - Topic 1 Question 20 Discussion

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?
B) yes- this reduces the risk to 0
A) yes- hedging is the only solution to mitigate the risk of adverse price movements
C) no- Leo LLP could do nothing and increase its prices instead
D) no- Leo LLP can take out insurance to mitigate this risk

CIPS L5M2 Exam - 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?

Show Suggested Answer Hide 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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Cassi
8 months ago
Insurance might be a viable option too!
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Dino
8 months ago
They could just raise prices instead, right?
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Darci
8 months ago
Wait, is hedging really the only way?
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Alyssa
8 months ago
Totally agree, hedging is essential!
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Kallie
8 months ago
Hedging is a common strategy for this.
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Alva
9 months ago
I vaguely remember that insurance can help with some risks, but I'm not clear if it applies to exchange rate fluctuations.
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Barabara
9 months ago
I feel like price fixing isn't the same as hedging. I wonder if Leo LLP could explore other strategies like diversifying suppliers.
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Marcos
9 months ago
I think the CFO is right about hedging being a common solution, but I recall a practice question where a company just raised prices instead.
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Charolette
9 months ago
I remember discussing hedging in class, but I'm not sure if it's the only way to manage exchange rate risks. There might be other options too.
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Arleen
9 months ago
Insurance could be an interesting alternative to consider. I'll make sure to explore all the options and their pros and cons before deciding on the best approach.
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Winifred
9 months ago
Hedging seems like the most straightforward way to address the exchange rate fluctuations. It's a common risk management strategy, so I'm inclined to agree with the CFO on this one.
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Craig
9 months ago
Hmm, I'm a bit confused. Doesn't hedging just reduce the risk, not eliminate it completely? I'll need to think this through more carefully.
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Franchesca
9 months ago
I'm not sure if hedging is the only solution here. Increasing prices could also be an option to mitigate the risk.
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Lynna
9 months ago
I think I've got it. The temporary case and decision shape are the two configurations that would achieve the desired behavior. Time to mark those choices and move on to the next question.
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Theron
10 months ago
Hmm, I'm a little confused. I know the NetAppDocs tool is used for generating reports, but I'm not sure which data sources would be the most appropriate to use in this scenario. I'll have to review the information again and make sure I understand the question properly.
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Terina
10 months ago
I feel like the order-fill rate performance might be really key for supply chain reliability, but I can't remember all the specifics about it.
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Pete
1 year ago
I wonder if they'll start a side hustle as currency traders. You know, really diversify that portfolio.
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Melita
1 year ago
Just increase the prices, eh? Why didn't I think of that? Genius, pure genius.
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Curtis
1 year ago
Hmm, I don't know about that 'reduce the risk to 0' claim. Seems a bit too good to be true. Gotta be some fine print there.
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Jospeh
1 year ago
Hmm, I don't know about that 'reduce the risk to 0' claim. Seems a bit too good to be true. Gotta be some fine print there.
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Justine
1 year ago
B) yes- this reduces the risk to 0
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Sherly
1 year ago
A) yes- hedging is the only solution to mitigate the risk of adverse price movements
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Rosann
1 year ago
Hold up, price fixing? Isn't that, like, super illegal or something? I'd stick to insurance if I were them.
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Barabara
1 year ago
D) no- Leo LLP can take out insurance to mitigate this risk
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Leontine
1 year ago
Hold up, price fixing? Isn't that, like, super illegal or something? I'd stick to insurance if I were them.
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Beckie
1 year ago
A) yes- hedging is the only solution to mitigate the risk of adverse price movements
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Jodi
1 year ago
Hedging is definitely the way to go! Who needs unpredictable exchange rates when you can have the sweet, sweet stability of a fixed price?
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Malika
1 year ago
D) no- Leo LLP can take out insurance to mitigate this risk
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Isadora
1 year ago
Hedging is definitely the way to go! Who needs unpredictable exchange rates when you can have the sweet, sweet stability of a fixed price?
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Adelle
1 year ago
B) yes- this reduces the risk to 0
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Kallie
1 year ago
A) yes- hedging is the only solution to mitigate the risk of adverse price movements
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Reuben
1 year ago
But what about taking out insurance? Wouldn't that also be a good option to consider?
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Latonia
1 year ago
I agree with Maia, hedging can help protect Leo LLP from exchange rate fluctuations.
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Maia
1 year ago
I think the CFO is right, hedging is the best way to mitigate the risk.
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