An introduction to forward contracts

First watch a video explaining why they may be used and what they do:

https://www.dropbox.com/s/fcyr0eq6qr32r08/forward%20contracts%20intro%20%281%29.mp4?dl=0

Then, watch this video to understand how you might be tested in this area using calculations:

https://www.dropbox.com/s/eitk643ugh7wckp/forward%20contract%20calc%20%281%29.mp4?dl=0

0 CommentsLeave a comment

Playing the game – Tips for answering objective tests

Some excellent tips

Pedleysmiths Blog

Amazon Which is the real logo?

Objective tests (OT’s) are becoming increasingly popular.

There are many reasons for this; educationally one of the big advantages is because, they are objective i.e. the mark is accurate, it’s either right or wrong.

It may come as a surprise to some students but when people mark there will be a slight (we hope) difference, its called marker bias.

The more cynical might argue that the examining body introduces them to simply save money. Whatever the justification students will find OT’s being used more frequently, at all levels and so need to be prepared.

But OT’s must be easier?

Answering a question like…. which one of the following best explains how a car engine works a-b-c-d, must be easier than writing/typing an answer explaining how a car engine works – right?

Well perhaps not, what if all of the answers are plausible? Think of the…

View original post 802 more words

0 CommentsLeave a comment

Boost your marks in P3 – remember the following:

  • If you are asked to evaluate risks mention impact (High or low) and probability (high or low)!
  • Always put the most significant/awful/catastrophic risk first in your evaluation/discussion.
  • If you say that hedging gives you certainty, remember you lose the upside potential!
  • If you put money in a overseas account you run the risk of losing it – bank collapse & irregularity
  • If you pay for a margin on a future, a premium on a option or pay early on anything you will have opportunity cost of lost interest. If an interest rate is given in the qn use it to calculate the loss. (Wherever you think it might be relevant /possible mention opportunity cost).
  • If currency risk means that you are having to raise your prices to cover the increase cost of goods you are buying, talk about price elasticity! (they want you to talk about economic risk, a form of currency risk).
  • If asked for audit test use words like: Observe, verify, analyse, reconcile rather than “check” all the time. And really give examples of tests (“I will observe how stock is booked it to see if it matched stated procedures”. (and not controls that there should be “There should be a controls to ensure stock is booked in correctly”).
  • If you are going to suggest a “check” get extra marks by saying the check will be regular, random, independent etc… not just simply a check. (Could in also involve a representative sample?)
  • Controls do not always work – there is residual risk. Really intelligent answers say this. If you know a control you are suggesting is flawed in some way then say what is wrong with it. Say that is not perfect because….
  • IT controls do not always work. Eg a till does not solve stock or cash management risk. Analysis of a till reconciliation though may show there are problems to follow up. Eg an invoice will not be approved if it is over a certain value. Staff will ask for two small invoices totally the higher value to get around the control. IE humans matter and IT cant be totally relied upon.
  • Breaking up a process between two people reduces risk eg segregation of duties. But if those two people collude it is extremely difficult to spot collusion. The two individuals will cover for each other – they are meant to be the check on each other but they are the problem. Auditors will not necessarily spot collusion as all the signs and checks will probably look normal.
  • Corporate governance is not perfect and has not solved all problems. Directors are still not behaving in the interests of shareholders. And the solutions that have been suggested or are being suggested are not perfect either. There are pros and cons and very practical considerations on the repercussions of suggestions. That is how the subject will be examined.
0 CommentsLeave a comment

Swaps past exam question: Sept 13 qn 4

Getting lots of queries about the strange way the swap is calculated in the model answer. Lots of people are not in the agreement with the answer!

Here is a copy of my answer… could have done with writing it out neater but I am getting very short of time now. You should be able to make out what is going on hopefully, if you attempt this question.
https://www.dropbox.com/s/fcutzx87yxdla9l/Sept13_q4_swaps_my%20answer.pdf?dl=0

0 CommentsLeave a comment