CIMA Exam CIMAPRO19-P03-1 Topic 5 Question 65 Discussion

Actual exam question for CIMA's CIMAPRO19-P03-1 exam

Question #: 65
Topic #: 5

Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA)as a hedging instrument. The company treasurer has advised that a short-term interest rate (STIR)future would be better.

Which of the following is true of an STIR?

AA STIR can be tailored to the exact needs of the company.

BA STIR is flexible and the position can be closed quickly and easily.

CA STIR must be kept for the whole duration of the contract.

DIf interest rates have gone down the price of the future will have fallen.

Show Suggested Answer

Suggested Answer: B, C, E

by Lavonda at Apr 25, 2024, 06:20 AM

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Marsha

10 days ago

Option D is incorrect - if interest rates fall, the price of the STIR future will actually rise, not fall. Gotta know your derivatives basics!

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Edelmira

15 days ago

Hah, imagine being stuck in an FRA contract and interest rates go the wrong way. With a STIR future, at least you can run for the hills when things get dicey.

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Georgeanna

16 days ago

Option B is the correct answer. STIR futures allow you to adjust your position as needed, unlike being locked into a contract.

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Katlyn

18 days ago

A STIR future seems like the better option for Zia's hedging needs. It's flexible and can be closed out easily, unlike an FRA which is less customizable.

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