A1: Risk and Exposure Part 2 ( Timed)

Which of the following statements in regard to translation and transaction risk are TRUE? Select ALL that apply

CHARTER Plc has been secretly copying products similar to the ones made by Pepsi Plc. 

From the options below, choose the risks that CHARTER Plc are exposing themselves to:

Up to five years ago, many of the components sold by HH contained toxic materials. Recent legislation in Europe requires such toxic components to be recycled in specific ways to minimise any environmental damage. In response to pressure from environmental campaigners, HH has started to offer a new service wherein customers are informed and encouraged to return the old components when they buy the new ones and the company would recycle them in accordance with the new legislation. This service has provided some good publicity for HH and has featured in its recent social and environmental report.

However, a review of HH’s recycling procedures by the Internal Audit Department identified that many components, including some that contain toxic materials, are simply thrown away by HH’s staff rather than being recycled.

From the options given below, select the risks faced by HH and the possible ways of dealing with such risk.

Zeecom Ltd is a firm that develops computer games for games consoles and computers. The firm has a talented team of IT staff and uses state of the art information systems that are routinely checked, maintained and audited.

One of the most prevalent risks for Zeecom at the moment is that criminals may attempt to hack into the firm’s systems and attempt to steal games that have not yet been released to the public. Not only is this activity illegal, but it also has the effect of reducing the excitement of the launch of the new game which then leads to a significantly lower amount of profits being generated from the game.

Which of the following categories does this risk fit under?

Executive Ltd is a diversified manufacturing business based in the UK.

Which of the following statements regarding Executive is/are TRUE? Select ALL that apply.

Patrice Richman is a wealthy investor who specialises in making large and risky investments in early-stage technology start-ups.

Which of the following events represents an upside risk that Patrice may face when he invests in an early-stage technology start-up? Select ALL that apply:

Capitec Financial is a bank based in the UK, the firm provides loans to medium-sized corporate clients. The firm is currently working on approving a large loan for a company called Julius Ltd.

Like any debt that is issued by Capitec Financial, there is a risk that Julius Ltd may fail to meet their debt obligations and not pay the full sum back.

What is the name given to this type of risk?

Y Ltd is a manufacturer of domestic appliances. Y has a long-term contract to sell its products to a company in Country A. Country A’s currency is the Z$. Inflation in country A is very high and is forecast to increase rapidly over the next few years. Y Ltd is concerned about the effect this will have on exchange rates.

What type of risk is Y Ltd concerned about?

Hazards can be defined as possible sources of danger and can be categorised into two main groups, natural and human-caused.

Which of the following events would be considered human-caused hazards? Select ALL that apply.

Which of the following is an underlying difference between uncertainty and risk?

A chartered accountancy firm failed to reveal serious financial irregularities while performing an audit for their largest customer and later those irregularities were investigated, which led to the closure of both the client company and auditor firm. 

This type of risk is classed as:

Liberty Ltd is an investment firm based in the UK, the company specialises in investing in real estate and construction projects.

Which of the following events would represent a source of two-way risk for Liberty Ltd? Select ALL that apply:

Which of the following is a characteristic of a fundamental risk?

Smartkicka is a multinational manufacturer and retailer of smartphones, the firm is profitable and has a successful track record of launching innovative technologies that customers love.

The board of Smartkicka is preparing to launch the firm’s latest product the “SK2”. Although extensive market research shows that there is a demand for this product, the board is becoming increasingly worried that sales for the new product will fail to reach expected volumes.

What is the most appropriate category of risk that the board is worried about?

John Walker is a successful entrepreneur that owns a computer hardware manufacturing company, but he has noticed a continuing reduction in profits year to year. Much of this is due to the dramatic increase in the number of competitors entering the hardware manufacturing industry.

He has decided to go into the housing construction business as there is a chronic shortage of houses and house prices are currently increasing at a rate of 0.5% per month.

What kind of risks is/are John exposing himself to? Select ALL that apply

Which of the following statements is/are FALSE: Select ALL that apply

£250,000 he won in buying rubber ducks from a company in Eswatini. He has just signed a contract to pay them $50,000 in 6 months’ time.

What is the risk is he exposed to? Choose the correct option.

Foschini Ltd is a leading clothing manufacturer based in the fictional country of Maftown, the firm uses sophisticated manufacturing methods to save costs and increase efficiency. The firm is the leading supplier to the majority of the world’s discount clothing retailers.

The following risks have been noted in the firm’s annual report:
I. The Maftown government is considering a protectionist trade policy that would introduce tariffs on cotton and other materials that Foschini uses in their production processes.

II. The dye that Foschini uses in their clothing can sometimes lead to irritated skin, although the chance of this affecting a customer is low

III. The company tends to pay workers slightly below the average industrial wage for this industry

IV. Foschini has a policy of letting staff go immediately if they are found to be a part of a workers union, this is a legal, but rare practice in Maftown

Which of the risks in the risk report are likely to be a source or sources of reputation risk?

Which of the following events would be an internal factor/s that could impact the achievement of a firm’s objectives: Select ALL that apply.

From the options below, choose the one which is true as pertains to risk:

Unik Ltd is a large real estate organisation. The company owns several iconic office buildings and collects substantial rental income from these assets. The rents from these assets must be remitted to investors on a quarterly basis.

The company has a higher than average receivables balance for its industry. Although Unik’s tenants are large multinational companies, there could be substantial bad debts arising from these clients if collections are not monitored.

Unik Ltd has started to use a without recourse factor to mitigate this risk. The factor effectively manages Unik Ltd’s receivables ledger and accepts the risk of non-payment from Unik’s clients.

Which of the following risk mitigation strategies has Unik Ltd adopted in this scenario?

Which of the following definitions best describes the term “uncertainty”?

For the month of November 2024, the forecast purchases of raw materials is as per below:

• £500,000 – 40% probability
• £750,000 – 10% probability
• £300,000 – 50% probability

 Calculate the upside and downside volatility from expected purchases.

Vets University is a large educational institution, the organisation has recently launched a 12-week accountancy course and has enlisted the help of a freelance accounting tutor to help facilitate and teach the course. The tutor and the university signed a basic contract which detailed the weekly fee, working hours and length of time over which the course was to be delivered.

In the middle of the course, adverse weather conditions meant that the university had to cancel the remaining weeks left in the course. The tutor is demanding payment for the cancelled work as he feels he is entitled to this money.

The contract contained no information or guidance regarding what would happen if the university cancelled the course part way through. As a result, there is likely to be a legal battle between the two parties.

What risk is most prevalent in this particular scenario?

From the options given below, choose the CORRECT example of strategic risk:

An investor has invested in a car manufacturing company and a car repair company.

Which form of risk diversification is this?

From the options below, drag and drop the appropriate risk which matches the given descriptions:

Which of the following statements is/are TRUE?

From the below options, select the one which best describes the statement “Risks can be pure.”

Which of the following statements is/are FALSE: Select ALL that apply