Download Free P3 Risk Management (Online) CIMAPRA19-P03-1-ENG Exam Questions

1. The safety guard on a piece of equipment was broken. The factory manager suspended an operator who refused to operate the equipment until it was repaired. The factory manager paid another operator a bonus for operating the damaged equipment until the safety guard could be repaired.

What does this incident say about the control environment within that factory?

2. KLO is a major quoted car rental company. The company is considering publishing its first cyber risk management report

AH rental bookings are made online Customers receive a booking reference number that they use to collect their cars from a convenient branch Customers enter their credit card details both so that KLO can take payment for their rental and also so that the customers can be charged automatically for late returns or damage to cars

KLO's management believes that it has three key areas of cyber risk Cyber criminals may wish to make bookings using fictitious data in order to steal KLO's cars, they may wish to use customers details to identify addresses of people who are away from home so that they can burgle houses and they may wish to abuse customer credit card details

KLO's Board is concerned that admitting to the nsk of stealing cars might encourage cnminals to exploit that vulnerability AJso. it is concerned that customers will be reluctant to rent cars if that would mean that their homes could be at risk of burglary while they are away The vulnerability of credit card details seems obvious and so the Board is not reluctant to admit to that.

Which TWO of the following are correct?

3. H Ltd is a company providing postal and courier services to small businesses. Customers pay a monthly or annual subscription fee to use the service, plus a very small fee for each item delivered.

A year ago, H employed a new sales team. Their remuneration is dependent on the number of new customers they sign up. Sales increased dramatically in the first six months, but now difficulties are emerging such as new customers dropping their subscription once the initial period has expired; subscriber direct debits being returned unpaid; subscribers going out of business and other similar issues.

Which of the following would be appropriate to help resolve these problems?

4. DRAG DROP

Identify, from the list provided, which category of business risk most accurately describes the events detailed below.

5. A UK manufacturing company has simultaneously:

• purchased a put option to sell USD 1million at an exercise price of GBP1.00 = USD1.65

• sold a call option that grants the option holder the right to buy USD 1million at a price of GBP1.00 = USD1.61 (this option has the same maturity date as the put).

Which of the following is a valid explanation for entering into these option positions?

6. P Ltd manufactures and sells electrical goods through retail outlets.

N is P Ltd's Sales Director. He has been recently promoted from a senior sales position with P Ltd. He has been forced to spend the first six months as Sales Director on dealing with an administrative mess left behind by the previous sales director.

You are a Senior Management Accountant at P Ltd. You have worked with N for many years.

N has worked hard and has made many changes that have brought significant benefit to the business.

N has asked you to postpone the recording of some purchase invoices so that he will meet his quarterly targets on profit margin.

What should you do?

7. Which of the following are true of interest rate swaps?

8. P Ltd, a manufacturing company, is considering a new capital investment project to set up a new production line.

The initial appraisal shows a healthy net present value of $6,465 million at a discount rate of 10% as shown in the table below:

However, management is unsure about the demand for the product which will be produced and has insisted that the future revenues should be reduced to certainity equivalents by taking 70%, 65% and 60% of the years 1,2, and 3 cash inflows respectively.

What should P do?

9. CORRECT TEXT

A US company has to pay £500,000 for a new machine.

You have the following information on currencies.

EUR 1 = £1.2300

EUR 1 = USD 1.6200

What is the cost of the machine in USD?

Give your answer to the nearest $.

10. The senior manager in the accounts department is going on annual leave for three weeks and Jo, a supervisor is being put in charge of the department for that time.

Which TWO of the following statements are correct?

11. Which of the following statements are true of residual risk?

12. T has its computer facilities in a building adjacent to its headquarters Severe structural problems have been discovered with this building and T has been advised that the only option is demolition and rebuild This leaves T with strategic decisions to make about its IT provision and it has decided to investigate the outsourcing of its services

Which TWO of the following factors should T consider as most important at this stage?

13. DFG is the largest bridge-building company in its home country, H. DFG works exclusively for the government of country H and the government awards DFG 80% of the contracts to build new bridges.

DFG's directors are considering using the big data approach to identify opportunities to increase sales revenues and profit.

Which of the following statements are true?

14. HGY is a major global corporation that has decided to implement the COSO Enterprise Risk Management Framework and integrate management practices throughout the organisation

Which THREE of the following would be appropriate for HGY?

15. DRAG DROP

Select the most appropriate level of responsibility for managing each of the following risks.

16. A project requires a capital investment of £2.7million. The project will save £450,000 each year after taxation. Assume the savings are in perpetuity. The business risk of the venture requires a 15% discount rate. The company has to borrow £1million to finance the project at a rate of 9% and the net tax shield is 30%, the project supports debt which generates an interest tax shield of 0.30 x 0.09 x £1million, which is £27,000 per year in perpetuity.

Calculate the project's adjusted present value.

17. DRAG DROP

Y plc, a pharmaceutical company, has dealt with a number of risks in the manner indicated below.

Use the TARA framework to classify each of Y plc's responses.

18. In the purchasing department, the purchasing manager selects and approves all suppliers, as they are the only person with sufficient experience to do so. They use a very limited number of suppliers because they can rely on these suppliers to provide goods of the quality required at a competitive price. They do not keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.

In relation to the above, which of the following statements are valid?

19. CH makes a popular type of chocolate bar The bars are made on a production line and are scanned for size and shape as they move along the line Wrong sized and misshapen bars are rejected as being poor quality. The scanner detects 90% of poor quality bars. If CH wants to reduce the risk of poor quality bars being sold to the public it can add a further check by a person scanning the production line as well. this check would detect 80% of poor quality bars

If the further check was implemented what percentage of poor quality bars would still get through the checking process?

20. W plc is a large international supermarket chain. It has many thousands of suppliers and many thousands of others competing for "shelf space" in its supermarkets.

Which of the following would be appropriate provisions for W plc to include in its Ethical Code in relation to its suppliers?

21. The Committee of Sponsoring Organisations (COSO) outlined six key principles of Enterprise Risk Management (ERM).

Which of the following are COSO key principles?

22. A hospital is part of a government provided health service which is free to patients. The management of the hospital is concerned with the need to minimise the risks to which the hospital is exposed from patient litigation.

In this context, which TWO of the following are appropriate steps to manage this risk?

23. Division A of X plc produced the following results in the last financial year.

Net profit $200,000 Gross capital employed $1,000,000

For evaluation purposes all divisional assets are valued at original cost.

The division is considering a project that has a positive NPV, will increase annual net profit by $15,000, but will require average inventory levels to increase by $50,000 and non-current assets to increase by $50,000.

X plc imposes a 16% capital charge on its divisions. Given these circumstances, will the evaluation criteria of return on investment (ROI) and residual income (RI) motivate division A managers to accept the project?

24. Which THREE of the following are true with regard to managing the changeover from an old to a new computer system?

25. DRAG DROP

As part of risk assessment exercise for a low-cost airline you are requested to match the risks listed below with the most approriate method of minimising or dealing with each risk.

26. The acronym VPN stands for.

27. DRAG DROP

Move the category of risk to the box beside the risk description it best matches.

28. CORRECT TEXT

SDF has a variable rate loan of $100 million on which it is paying interest of LIBOR + 2%.

SDF entered into a swap with CV bank to convert this to a fixed rate 7% loan. CV bank charges an annual commission of 0.3% for making this arrangement.

Calculate the net payment from SDF to CV bank at the end of the first year if LIBOR was 3% throughout the year.

Give your answer in $ million, to one decimal place.

29. DRAG DROP

G plc has decided to move its production plant to overseas Country

30. Which TWO of the following are reasons for a company to comply with the Committee of Sponsoring Organisations of the Treadway Commission 2017 Enterprise Risk Management Framework (COSO Framework)?

31. Which of the following best describes the relevance of value at risk (VaR) as a decision tool?

32. B is a company with a strong risk appetite.

Which of the following are benefits of using the certainty equivalent method of capital investment appraisal in B's case?

33. K is a large mining company. In its risk report it states that there is a risk of accidents and injury because of the nature of the industry. It states that it has staff training in place and complies with all Health and Safety regulations but in spite of this there will still be a residual risk that accidents and injuries may occur.

Which of the following statements are correct?

34. HWG is a large company which grows and processes coffee The coffee is sold to supermarkets, branded with their names for sale as "own brand" products HWG brands and packages the coffee using the supermarkets' own designs

HWG's directors are considering a strategic proposal to develop a range of coffees to be sold under a brand that HWG will develop

Which TWO of the following should the directors consider as part of their strategic analysis?

35. N, a large company in the food production industry, has grown over the years by the acquisition of several smaller rivals. The company has ten branches located in its home country and has just opened a foreign branch for the first time. It has recently made some changes to the structure and implementation of its control system.

Which TWO of these would be most likely to improve the overall control system?

36. H is a farmer. An outbreak of a contagious animal disease has just been detected near the region where the farm is located. This could potentially lead to substantial financial losses for H.

In these circumstances, which of the following responses by H is the most appropriate?

37. DRF is a manufacturing company

The internal auditor is conducting an investigation into the operation of the payroll system and has discovered a compliance error

The Head of Human Resources (HR) is required to add any new names to the payroll, using a specific computer password The Head of HR was absent for a month because of ill health During that period a senior member of the Wages Office, who is normally responsible only for organising wage payments, was issued a temporary password in order to add new names to the payroll The password was cancelled when the Head of HR returned to work

Which TWO of the following statements are correct?

38. C Ltd is a private, family-owned company which is hoping to become listed on a recognised Stock Exchange within the next two years. At the moment, the Board of Directors comprises five directors; four of whom are from the founding family and all of whom are involved in the day-to-day running of the business. The remaining director obtained a seat on the Board three years ago as a condition of an investment by a venture capital fund.

The Board meets in half-day sessions once a fortnight and the Board meetings are reasonably well run. All decisions are taken by the Board as a whole. There are no sub-committees.

Which of the following steps would it be appropriate for C Ltd to take in the light of the proposed listing?

39. CORRECT TEXT

M plc has a $2 million loan outstanding on which the interest rate is reset every 6 months for the following 6 months and the interest is payable at the end of that 6-month period. The next 6-monthly reset period starts in 3 months and the treasurer of M plc thinks that interest rates are likely to rise between now and then.

Current 6-month rates are 7.2% and the treasurer can get a rate of 7.7% for a 6-

month forward rate agreement (FRA) starting in 3 months' time. By transacting an FRA the treasurer can lock in a rate today of 7.7%.

If interest rates are 8.5% in 3 months' time, what will the net amount payable be?

Give your answer to the nearest thousand dollars.

40. RFD, a listed company, is considering making an investment in a risky new venture. RFD has a substantial cash surplus that will be used to acquire the necessary resources. It is unlikely that RFD would have been able to raise finance for this investment because the company is already highly geared.

Which of the following statements about stakeholders' conflicting interests are true?

41. DRAG DROP

Select the correct ethical principle that corresponds to each ethical dilemma described.

42. UJK manufactures garden machinery. The company is dependent upon another manufacturer for the motors that power its products.

One of the factors that is being considered in a stress test requested by UJK's Board is the possibility that the motor manufacturer increases its selling prices by 10% The motor accounts for a significant proportion of the overall manufacturing cost of UJK's products

Which of the following are correct?

43. JC is a car manufacturing company in country C and manufactures diesel cars It is facing a number of serious risks .

Which TWO of the following nsk factors are external?

44. K has several subsidiary companies. The directors of K's subsidiaries are paid an annual b onus based upon their particular subsidiary's reported profits.

The directors of one of K's subsidiaries are considering the choice between two models of a machine.

Which of the following is most likely to explain the decision to choose model X over model Y?

45. An electricity company owns and operates a nuclear power station located ten miles from a large city. A recent and very extensive engineering examination of the power station concludes with the estimate that the probability of a major nuclear disaster within the next 20 years is 0.2%.

Which of the following best explains the relevance of quantifying the risk in that way?

46. The managers of a company are agents for the shareholders tasked with increasing shareholders' wealth.

Which of the following will usually increase shareholders' wealth?

47. DRAG DROP

The list below has duties performed by risk managers and internal auditors. Show who would carry out the duties assuming the company has both risk managers and internal auditors.

48. M is a multinational IT company with headquarters in Asia and with operations in all continents.

It is now trying to expand its operations in Europe. This is seen as a major challenge as the European market is very well developed with established players in fierce competition against each other.

As well as developing and producing its own products, it sources products across Asia, America and Europe as part of infrastructure deals which have to include as much of its own equipment as possible. In doing this, transfer prices can be set in YEN, USD, EURO, GBP. Transfer prices are revised every month in line with production times as most goods are made on short order times with sales cycles running at 3-4 months.

The longer sales cycle against committed transfer pricing presents problems as customers expect quotes to be valid for 90 days whereas M's suppliers reserve the right to revise pricing at the end of every month with quotes only valid for 8 days in the following month.

How should M deal with this problem?

49. DRAG DROP

Match the descriptions shown in the boxes below with the method of quantifying risk exposure it best describes.

50. In the purchasing department, the purchasing manager selects and approves all suppliers, as they are the only person with sufficient experience to do so. They use a very limited number of suppliers because they can rely on these suppliers to provide goods of the quality required at a competitive price. They do not keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.

In relation to the above, which of the following statements are valid?

51. Laura is an accounts clerk. She is supposed to sign each invoice as evidence that she has conducted checks against supporting documents. Sometimes Laura signs invoices without making these checks.

Terry is a member of the internal audit team. Terry has been told to conduct compliance tests on whether Laura is checking the invoices properly.

Which of the following would give Terry a false sense of assurance that Laura's checks have been operating?

52. VBN is a multinational company that has 60 subsidiary companies that operate in 11 countries. VBN evaluates the performance of each subsidiary as an investment centre, using residual income to measure performance.

Which THREE of the following threats of dysfunctional behaviour may arise from VBN's use of residual income to measure subsidiaries' performance?

53. D is a large oil refinery.

The managers have identified four risks shown in the risk map below:

Which of the risk mitigations listed below would be the best for dealing with the two risks classified as medium likelihood and high impact?

54. MNB is a multinational IT company with headquarters in Asia and with operations in all continents.

MNB is attempting to expand its operations in Europe. This is seen as a major challenge as the European market is very well developed and highly competitive.

MNB develops and manufactures its own products. Parts and assemblies are sourced across Asia, America and Europe. These are sometimes purchased locally as a condition of a contract, but MNB aims to include as much of its own equipment as possible. Transfer prices between MNB's subsidiaries can be set in YEN, USD, EURO, GBP. Transfer prices are revised every month in line with production times as most goods are made on short order with sales cycles running at 3-4 months.

What types of risk are being presented here?

55. Company W produces mobile phone components and has recently tendered for a substantial contract. The results of the tendering process will not become available until three months from now. If the company is successful it will require 2,000 units of a commodity which is currently traded in an open commodity market for $740 per unit. However, there has been speculation that this commodity could increase substantially in price over the next three months and so the company is considering purchasing the commodity now and storing it for three months.

The funds to buy the commodity would be borrowed at an annual interest rate of 7% and the storage cost of the product would be $5.40 per unit per month. The storage costs would be paid at the end of the three month storage period.

Which of the following represents the gain or loss (to the nearest thousand dollars) that will accrue to Company W assuming that the price of the commodity rises to $800 in three months' time?

56. The government health service in country H employs well over 100,000 staff in various locations throughout the country. Traditionally, local management has had high levels of autonomy in relation to personnel issues and there are several different human resources (HR) managers located across various regions.

The government has decided to introduce a completely new HR/payroll information system to have just one database containing all relevant information about every staff member on the payroll (start date, job title, salary and all other details) and to use this information to

begin streamlining recruitment and HR policies.

The government has outsourced the system's development to a reputable company.

Which of the following are disadvantages associated with this IT project?

57. Which of the following statements best explains why a corporate treasury department should be established as a cost centre rather than a profit centre?

58. CORRECT TEXT

A US company has to pay £500,000 for a new machine.

You have the following information on currencies.

EUR 1 = £1.2300

EUR 1 = USD 1.6200

What is the cost of the machine in USD?

Give your answer to the nearest $.

59. A capital investment project shows a NPV of £3,450 at a discounted rate of 8% and an NPV of £1,210 at a discounted rate of 9%.

What is the internal rate of return?

60. With regard to the internal audit department, which TWO of the following statements are correct?

61. Z plc has recently undertaken a SWOT analysis. The SWOT analysis identified two main threats to Z plc:

• The threat that the currency of Z plc's main overseas competitor weakens compared to Z plc's home currency.

• The threat that there will be a military coup which will overthrow the government in the country that Z plc purchases most of its raw materials from.

Which TWO of the following categories of risk correspond most closely to the above threats?

62. A consultancy firm has many overseas clients The firm's staff are responsible for booking travel and accommodation through an independent travel agent who invoices the firm. There are strict rules governing bookings Staff at all levels must book economy class airfares unless the scheduled flight time is greater than eight hours, in which case they can book a business class seat Hotel accommodation should cost less than $300 per night

One of the firm’s directors is visiting the consultancy team responsible for a large overseas project The director flew business class, even though the flight took only five hours The director is booked into an executive suite at an expensive hotel at a cost of $900 per night

Which TWO of the following statements concerning the director's behavior are correct?

63. RFD, a listed company, is considering making an investment in a risky new venture. RFD has a substantial cash surplus that will be used to acquire the necessary resources. It is unlikely that RFD would have been able to raise finance for this investment because the company is already highly geared.

Which of the following statements about stakeholders' conflicting interests are true?

64. Physical access controls can greatly enhance the security of company assets.

Select THREE methods by which physical access security can be significantly enhanced.