Question Tag: Financial management

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SCS – Nov 2024 – L3 – Q4c – Forward Rate Agreement for Interest Rate Risk Management

Calculation of settlement amount for FRA under different Ghana Reference Rate (GRR) scenarios.

Question

The company has decided to use a Forward Rate Agreement (FRA) to manage its interest rate risk likely to arise from the short-term loan of GH¢15 million it intends to borrow in three months for a period of six months.

Required:

i) What is the purpose for a company to enter into an FRA arrangement? (2 marks)

ii) Calculate the amount of money that will be paid to settle the FRA at the beginning of the FRA period if, at the end of month 3, when the FRA becomes effective, the six-month Ghana Reference Rate (GRR) is as follows:

a) 37.50%
b) 28.50%

In each case, clearly state the party (i.e. FRA buyer or FRA seller) responsible for making the payment.

Answer

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Tags: Financial management, Forward Rate Agreement, Hedging, Interest Rate Risk, Risk Mitigation, Short-Term Borrowing
Level: Level 3

Topic: International financial management
Series: Nov 2024

SCS – Nov 2024 – L3 – Q4a – Capital Budgeting Framework

Explanation of the five key elements in the capital budgeting framework for investment appraisal.

Question

One of the Board members, Dr. Halimatu Sadia, has expressed concerns regarding Dr. Ayimadu Baffour’s consistent failure to conduct investment appraisals and capital budgeting when making long-term investment decisions.

Required:

Advise Dr. Ayimadu Baffour on the capital budgeting and strategic planning framework used for conducting investment appraisals by briefly outlining the FIVE key elements of the framework.

Answer

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Tags: Capital Budgeting, Decision Making, Financial management, Investment Appraisal, Strategic Planning
Level: Level 3

Topic: Investment Decisions
Series: Nov 2024

FM – Nov 2024 – L2 – Q5b – Overdue Debt Collection

Steps to collect overdue debts in financial management.

Question

Outline the steps to be followed to collect overdue debts.

Answer

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Tags: Credit control, Debt Collection, Financial management, Late Payments, Payment Recovery, Receivables
Level: Level 2

Topic: Management of receivables and payables
Series: Nov 2024

FM – Nov 2024 – L2 – Q1b – Ethical Issues in Financial Management

Discuss four ethical issues in financial management and their impact on decision-making.

Question

Finance Managers often encounter decisions that affect the organisation’s financial health and reflect its commitment to ethical standards. Balancing profitability with ethical considerations can be challenging, yet it is essential for sustaining long-term success and protecting an organisation’s reputation.

Required:
Discuss FOUR ethical issues in financial management.

Answer

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Tags: Corporate Governance, Ethics, Financial management, Professional Conduct
Level: Level 2

Topic: Ethical issues in financial management
Series: Nov 2024

FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques

Calculate the value of the convertible loan stock, expected growth rate in equity price, and provide recommendations on whether to hold or sell the security.

Question

Honey Comb Plc has issued 10% convertible loan stock, which is due for redemption in 10 years’ time (i.e., December 31, 2025). The option to convert is open only for another two years. If conversion does not take place by December 31, 2017, the option will lapse. The issue was sold to the public at a price of N920 for N1000 of convertible loan stock. The conversion rate at January 1, 2016 was 250 equity shares for N1000 of stock. Non-convertible loan stock in a similar risk class is presently yielding 12%. The market price of Honey Comb Plc equity shares has been increasing steadily over time, reflecting the performance of the company. The shares currently pay a dividend of N0.30 per share. The current price of the convertible security is N960, and each share is currently valued at N3.00. A holder of the convertible loan stock is considering whether to sell his holdings or continue to hold the stock. Ignore taxation while answering the questions.

Required:
a. What is the value of the security as simple unconvertible loan stock? (5 Marks)

b. What is the expected minimum annual rate of growth in the equity share price that is required to justify the holder of convertible loan stock holding on to the security before the option expires? (12 Marks)

c. What recommendation would you make to the holder of the security and why? (3 Marks)

Answer

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Tags: Convertible Loan Stock, Equity Shares, Financial management, Investment Decision, Valuation
Level: Level 3

Topic: Investment Appraisal Techniques
Series: NOV 2016

FM – May 2022 – L3 – Q3 – Investment Appraisal Techniques

Calculate NPV of an investment, discuss inflation's impact, and recommend an optimal project under capital constraints.

Question

Opeyemi operates in an economy that has almost zero inflation. Management ignores inflation when evaluating investment projects because it is very low and considered insignificant. Opeyemi is evaluating a number of similar, alternative investments. The company uses an after-tax cost of capital of 6% and has already completed the evaluation of two investments.

The third investment is a new product that would be produced on a just-in-time basis and is expected to have a life of three years. This investment requires an immediate cash outflow of N200,000, which does not qualify for tax depreciation. The expected residual value at the end of the project’s life is N50,000.

A draft financial statement showing the values that are specific to this investment for the three years is as follows:

Year	1	2	3
Sales	230,000	350,000	270,000
Production Costs:
Materials	54,000	102,000	66,000
Labour	60,000	80,000	70,000
Other*	80,000	90,000	80,000
Profit	36,000	78,000	54,000
Closing Receivables	20,000	30,000	25,000
Closing Payables	6,000	9,000	8,000

*Other production costs shown above include depreciation calculated using the straight-line method.

The company is liable to pay corporate tax at a rate of 30% of its profits. One half of this is payable in the same year as the profit is earned, and the remainder is payable in the following year.

Required:

a. Calculate the net present value of the above investment proposal. (14 Marks)

b. Explain how the above investment project would be appraised if there were to be a change in the rate of inflation, so that it became too significant to be ignored. (3 Marks)

c. The evaluation of the other two investments is shown below:

Investment	Initial Investment	Net Present Value
W	300,000	75,000
Y	100,000	27,000

The company only has N400,000 of funds available. All of the investment proposals are non-divisible. None of the investments may be repeated.

Required:

Recommend, with supporting calculations, which of the three investment proposals should be accepted. (3 Marks)

Answer

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Tags: Financial management, Inflation impact, Investment Selection, NPV Calculation
Level: Level 3

Topic: Investment Appraisal Techniques

FM – Nov 2021 – L3 – Q6 – Portfolio Management

Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.

Question

Bettaluck plc is experiencing a substantial net cash inflow, which has been temporarily invested in a short-term equity portfolio. This portfolio consists of investments in four Nigerian listed companies. The funds are intended to meet tax obligations, dividend payments, and future capital expenditures in several months.

Portfolio Details:

Required:

a. Based on the data provided, calculate the risk (i.e., Beta) of Bettaluck’s short-term investment portfolio relative to the market. (4 Marks)

b. Recommend whether the composition of Bettaluck’s short-term investment portfolio should be adjusted. Provide reasons for your recommendation, including relevant calculations. (6 Marks)

c. Discuss the factors a financial manager should consider when investing in marketable securities. (5 Marks)

Answer

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Tags: Capital Gains, Dividend Yield, Financial management, Investment Portfolio, Market Return, Marketable Securities, Portfolio Beta, Risk Assessment, Short-Term Strategy, Treasury bills
Level: Level 3

Topic: Portfolio Management

FM – Nov 2020 – L3 – Q4a – Interest Rate Risk Management

Identifies and explains the risks industrial companies face due to fluctuations in interest rates.

Question

a. What risks might an industrial company face as a result of interest movements? (8 Marks)

Answer

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Tags: Financial management, industrial companies, Interest Rate Risk, Risk Assessment
Level: Level 3

Topic: Interest Rate Risk Management

FM – Nov 2020 – L3 – Q3 – Corporate Governance and Financial Strategy

Discusses the ethical responsibilities companies face in developing an ethical framework and how ethical considerations impact main functional areas.

Question

a. What are the main responsibilities faced by companies when developing an ethical framework, and in what ways can these responsibilities be addressed? (10 Marks)

b. Discuss how ethical considerations impact on each of the main functional areas of a firm. (10 Marks)

Answer

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Tags: Corporate Governance, ethical framework, Ethics, Financial management, functional impact, Responsibilities
Level: Level 3

Topic: Corporate Governance and Financial Strategy

PSAF – Nov 2014 – L2 – Q6 – Public Sector Reforms

Comparison of domestic vs. external public debts and proposing debt restructuring for Nigeria.

Question

Nigeria has contracted a number of debts obligations from both domestic and external sources.

a. What comparisons can you make between domestic and external public debts?
(9 Marks)

b. Formulate a debt restructuring method as a strategy for debts management in Nigeria.
(6 Marks)

Answer

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Tags: Debt Restructuring, Domestic Debt, External Debt, Financial management, Public Debt, Treasury Management
Level: Level 2

Topic: Public Sector Reforms

PSAF – May 2016 – L2 – Q4c – Public sector financing initiatives

This question explores the objectives and guiding principles of Public Private Partnership (PPP) agreements in Ghana.

Question

i) State ONE objective of a public private partnership agreement?

ii) Explain THREE factors that the Government would consider before entering into a public private partnership agreement?

iii) Explain the following terms used as guiding principles in IPSAS 13 and 32 – Accounting for Public Private Partnership:

Service Concession Arrangement
Lease
Recognition of Revenue
Economic Life of an Asset

Answer

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Tags: Asset Life, Financial management, Ghana, IPSAS, Lease, PPP, Public-Private Partnership, Revenue Recognition, Service Concession
Level: Level 2

Topic: Public sector financing initiatives
Series: MAY 2016

PSAF – May 2016 – L2 – Q4b – The context of public financial management

This question addresses the concept of corporate governance in the public sector and its principles.

Question

i) Explain the term, corporate governance as applied to the public sector.

ii) Explain THREE corporate governance principles commonly used in public financial management.

Answer

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Tags: Corporate Governance, Financial management, Governance Principles, Public Sector
Level: Level 2

Topic: The context of public financial management
Series: MAY 2016

PSAF – May 2016 – L2 – Q4a – The context of public financial management

This question discusses the concept of public accountability and mechanisms to ensure it in the public sector.

Question

a) i) What is public accountability?

ii) Explain THREE mechanisms for ensuring public accountability in the public sector.

Answer

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Tags: Financial management, Mechanisms, Public Accountability, Public Sector
Level: Level 2

Topic: The context of public financial management
Series: MAY 2016

PSAF – May 2016 – L2 – Q3e – Public procurement

This question addresses the procedures established by Local Authorities to control revenue.

Question

Revenue control describes the various checks put in place to ensure that all moneys due are received and accounted for.

Required: Explain FOUR procedures established by Local Authorities to control revenue.

Answer

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Tags: Financial management, Internal Controls, Local Authorities, Public Procurement, Public Sector, Revenue Control
Level: Level 2

Topic: Public Procurement
Series: MAY 2016

PSAF – May 2016 – L2 – Q3d – Preparation and presentation of financial statements for central government

This question covers the explanation of the features of the new Chart of Accounts used in the public sector.

Question

The new Chart of Accounts has been designed to reflect the generic organisational structure of Government and its requirements for financial reports. It is based on the Ghana Finance Statistics Manual, International Monetary Fund, and Government of Ghana Reporting requirements.

Required: Explain FOUR features of this new Chart of Accounts.

Answer

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Tags: Chart of Accounts, Financial management, Financial Reporting, Government of Ghana, IMF, Public Sector
Level: Level 2

Topic: Preparation and presentation of financial statements for central government
Series: MAY 2016

PSAF – May 2016 – L2 – Q2b – Public Sector Fiscal Planning and Budgeting

Identify procedures in commitment accounting and explain reasons for writing off advances in the public sector.

Question

i) Commitment accounting begins with the commitment process.

Required:
Identify THREE procedures involved in the commitment process. (3 marks)

ii) Heads of departments have administering authority for advances, recoveries, and proper record keeping in addition to administering losses incurred in advances issued to staff of their department (FAR 121).

Required:
Explain TWO reasons why a head of a government entity may decide to write off advances owed by public officials. (2 marks)

Answer

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Tags: Advances, Commitment Accounting, Financial management, Public Sector Accounting, Public Sector Policies, Write-Offs
Level: Level 2

Topic: Public sector fiscal planning and budgeting
Series: MAY 2016

PSAF – Nov 2018 – L2 – Q2a -Public expenditure and financial accountability framework

State and explain four ways to safeguard public financial resources under the PFM Act 2016.

Question

The Public Financial Management (PFM) Act, 2016 (Act 921) was introduced to ensure that public funds and resources are properly safeguarded and are used economically, efficiently, effectively, and with due propriety.

Required:
State and explain FOUR (4) ways in which public financial resources can be safeguarded under the PFM Act 2016.

Answer

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Tags: Financial management, Governance, PFM Act 2016, Public Financial Resources, Safeguarding
Level: Level 2

Topic: Public expenditure and financial accountability framework
Series: NOV 2018

PSAF – Nov 2018 – L2 – Q1c – The context of public financial management

Explain four reasons why the differences between public and private sector objectives are important.

Question

One main difference between public sector and private sector entities is that their objectives are different. The objective of a public sector entity is to deliver public goods and services to all citizens in order to maximize their welfare. However, the principal objective of a private sector entity is to make a profit on the goods and services they produce and sell in the market.

Required:
Explain FOUR (4) reasons why these differences are important.

Answer

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Tags: Differences, Financial management, Objectives, Private Sector, Public Sector
Level: Level 2

Topic: The context of public financial management
Series: NOV 2018

PSAF – Apr 2022 – L2 – Q1a – The context of public financial management

Discuss reasons for the non-implementation of a full accrual public sector accounting system by many countries.

Question

Accrual basis of Accounting has been recommended as the best approach to ensure accountability and transparency in the management of public funds. Despite its favorable advantages, many countries are yet to implement a full accrual public sector accounting system.

Required:
Discuss FOUR (4) reasons why many countries have not been able to implement a full accrual public sector accounting system. (10 marks)

Answer

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Tags: Accounting Systems, Accrual Accounting, Financial management, Implementation Challenges, Public Sector
Level: Level 2

Topic: The context of public financial management
Series: APR 2022

FM – May 2020 – L2 – Q5a – Cash management

Explain three motives for holding cash.

Question

Explain THREE (3) motives for holding cash.

Answer

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Tags: Cash Management, Financial management, Motives for holding cash
Level: Level 2

Topic: Cash management
Series: MAY 2020

Question Tag: Financial management

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SCS – Nov 2024 – L3 – Q4c – Forward Rate Agreement for Interest Rate Risk Management

Calculation of settlement amount for FRA under different Ghana Reference Rate (GRR) scenarios.

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SCS – Nov 2024 – L3 – Q4a – Capital Budgeting Framework

Explanation of the five key elements in the capital budgeting framework for investment appraisal.

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FM – Nov 2024 – L2 – Q5b – Overdue Debt Collection

Steps to collect overdue debts in financial management.

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FM – Nov 2024 – L2 – Q1b – Ethical Issues in Financial Management

Discuss four ethical issues in financial management and their impact on decision-making.

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FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques

Calculate the value of the convertible loan stock, expected growth rate in equity price, and provide recommendations on whether to hold or sell the security.

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FM – May 2022 – L3 – Q3 – Investment Appraisal Techniques

Calculate NPV of an investment, discuss inflation's impact, and recommend an optimal project under capital constraints.

Recommend, with supporting calculations, which of the three investment proposals should be accepted. (3 Marks)

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FM – Nov 2021 – L3 – Q6 – Portfolio Management

Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.

Required:

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FM – Nov 2020 – L3 – Q4a – Interest Rate Risk Management

Identifies and explains the risks industrial companies face due to fluctuations in interest rates.

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FM – Nov 2020 – L3 – Q3 – Corporate Governance and Financial Strategy

Discusses the ethical responsibilities companies face in developing an ethical framework and how ethical considerations impact main functional areas.

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PSAF – Nov 2014 – L2 – Q6 – Public Sector Reforms

Comparison of domestic vs. external public debts and proposing debt restructuring for Nigeria.

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PSAF – May 2016 – L2 – Q4c – Public sector financing initiatives

This question explores the objectives and guiding principles of Public Private Partnership (PPP) agreements in Ghana.

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PSAF – May 2016 – L2 – Q4b – The context of public financial management

This question addresses the concept of corporate governance in the public sector and its principles.

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PSAF – May 2016 – L2 – Q4a – The context of public financial management

This question discusses the concept of public accountability and mechanisms to ensure it in the public sector.

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PSAF – May 2016 – L2 – Q3e – Public procurement

This question addresses the procedures established by Local Authorities to control revenue.

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PSAF – May 2016 – L2 – Q3d – Preparation and presentation of financial statements for central government

This question covers the explanation of the features of the new Chart of Accounts used in the public sector.

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PSAF – May 2016 – L2 – Q2b – Public Sector Fiscal Planning and Budgeting

Identify procedures in commitment accounting and explain reasons for writing off advances in the public sector.

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PSAF – Nov 2018 – L2 – Q2a -Public expenditure and financial accountability framework

State and explain four ways to safeguard public financial resources under the PFM Act 2016.

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PSAF – Nov 2018 – L2 – Q1c – The context of public financial management

Explain four reasons why the differences between public and private sector objectives are important.

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PSAF – Apr 2022 – L2 – Q1a – The context of public financial management

Discuss reasons for the non-implementation of a full accrual public sector accounting system by many countries.

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FM – May 2020 – L2 – Q5a – Cash management

Explain three motives for holding cash.

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