CIMA Exam CIMAPRA19-P03-1 Topic 3 Question 38 Discussion

Actual exam question for CIMA's CIMAPRA19-P03-1 exam

Question #: 38
Topic #: 3

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?

AThe company expects to receive USD 1million from a customer and wishes to offset the cost of the put option by the premium on the call option.

BThe company expects to pay USD 1million to a supplier and wishes to offset the premium from the call option against the cost of the put option.

CThe company expects to receive USD 1million from a customer and wishes to obtain an additional benefit if the USD strengthens beyond GBP 1.00 = USD 1.61.

DThe company expects to pay USD 1million to a supplier and wishes to obtain additional protection against the USD strengthening beyond GBP 1.00 = USD 1.65.

Show Suggested Answer

Suggested Answer: B, C, E

by Yoko at Jan 22, 2024, 07:11 PM

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Lachelle

1 months ago

Alright, folks, no peeking at each other's answers! This isn't a team sport... unless you're planning to start a hedge fund together after the exam.

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Javier

1 months ago

Ha! These options are like a financial version of 'choose your own adventure.' I'll go with D, but I'm secretly hoping for a hidden 'all of the above' answer.

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Lilli

4 days ago

Yeah, D seems like the most logical choice to mitigate any risks.

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Carry

8 days ago

I agree, D seems like the safest option to protect against any unexpected changes.

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Benton

13 days ago

I think D makes sense, it's all about protecting against the USD strengthening.

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Bettye

2 months ago

Option C seems a bit too optimistic. The company is probably more concerned with managing their risk than trying to profit from a potential USD appreciation.

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Claudio

12 days ago

A: Option C does seem a bit optimistic, they're likely focused on minimizing potential losses.

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Evette

13 days ago

B: I agree, managing risk is probably their main goal.

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Rex

17 days ago

A: I think option D makes more sense. The company wants protection against the USD strengthening.

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Makeda

2 months ago

Interesting, I was leaning towards option B at first, but the explanation for option D seems more comprehensive. Gotta pay attention to those details!

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Novella

28 days ago

Yeah, paying attention to those details is crucial in these situations.

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Freeman

1 months ago

I agree, option D does seem like a more comprehensive explanation.

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Maddie

1 months ago

Yes, it's important to consider all the details when entering into these option positions.

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Jaleesa

1 months ago

I agree, option D does seem to provide more protection against the USD strengthening.

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Whitley

2 months ago

Hmm, the key here is the company's expectations. I think option D makes the most sense, as the company wants to protect itself against the USD strengthening beyond a certain point.

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