CIPS L5M2 Exam - Topic 1 Question 20 Discussion

Actual exam question for CIPS's L5M2 exam

Question #: 20
Topic #: 1

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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Cassi

6 months ago

Insurance might be a viable option too!

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Dino

6 months ago

They could just raise prices instead, right?

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Darci

7 months ago

Wait, is hedging really the only way?

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Alyssa

7 months ago

Totally agree, hedging is essential!

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Kallie

7 months ago

Hedging is a common strategy for this.

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Alva

7 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

7 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

7 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

8 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

8 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

8 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

8 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

8 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

8 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

8 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

8 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

12 months 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

12 months 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

11 months ago

D) no- Leo LLP can take out insurance to mitigate this risk

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Leontine

12 months 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

11 months ago

D) no- Leo LLP can take out insurance to mitigate this risk

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Isadora

11 months 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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