Question Tag: Risk Management

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  • 20 Marks

MFS – APR 2024 – L2 – Q3 – Financial Intermediation and Profitability Enhancement

Describe financial intermediation as a business activity and consider ways to enhance profitability of a financial intermediary with reference to revenue streams and cost components, while maintaining caution.

(a.) How would you describe Financial Intermediation as a form of business activity?                                                                                     (b.) With reference to its revenue streams and cost components, consider how Profitability of a Financial Intermediary could be enhanced within the ambit of caution.

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  • 30 Marks

CML – APR 2024 – L3 – Q4 – Relevance of ESG in Bank Credit Strategy

Discuss the importance of incorporating Environmental, Social, and Governance (ESG) factors into a bank's credit strategy.

Discuss the relevance of ESG considerations in Bank Credit Strategy.

[20 Marks]

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  • 20 Marks

CG – APR 2024 – L4 – Q6 – Role Expansion of Chief Governance Officer in Capital Planning

Discuss whether the evolving role of the Company Secretary to Chief Governance Officer should include capital planning in situations of stressed bank balance sheets.

The changing role of the Company Secretary to become the Chief Governance Officer (CGO) means that in situations of stressed Balance Sheet or Statement of Position of banks, the role of the CGO should be expanded to include Capital Planning. Discuss.

(20 marks)

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  • 20 Marks

SCS – Mar 2025 – L3 – Q2 – Change Management

Explain leadership's role in change management and three of Kanter's skills for AML's diversification strategy.

a) Akosa Minerals Limited (AML) has undergone significant transformations in its operations, particularly with the integration of lithium extraction into its core business. This shift has presented both opportunities and challenges, including regulatory compliance, technological advancements and stakeholder management. Successfully navigating these changes requires effective leadership and change management.

Rosabeth Moss Kanter suggests that managers in change-adept organisations must possess key skills to drive transformation effectively. As AML continues its diversification efforts, the company’s leadership must demonstrate these skills to sustain growth and maintain a competitive edge.

Required:

Identify and explain the critical role of leadership in managing change and THREE out of five key change management skills suggested by Kanter that AML’s leadership should exhibit to effectively manage its diversification and growth strategies.

b) Akosa Minerals Limited (AML) recently engaged a risk consultant from Isodek Consultants to conduct a comprehensive risk assessment and provide recommendations on managing the transformational changes the company is undergoing. The consultant’s report highlights key risks and challenges related to AML’s diversification strategy, operational restructuring, stakeholder engagement and compliance with global sustainability standards.

To navigate these challenges effectively, AML’s leadership needs to apply the Gemini Consultants’ 4Rs model which provides a structured framework for managing large-scale organisational change.

Required:

Using the Gemini Consultants’ 4Rs model, discuss how each component can be applied to address the operational and environmental risks identified in the consultant’s report.

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  • 20 Marks

FM – Mar 2025 – L2 – Q3 – Foreign exchange risk and currency risk management

Determine outcomes of forward contract and money market hedge for GPL's USD payment and recommend the best technique.

a) Gyenyame Pharmaceuticals LTD (GPL), a Ghanaian company, imports raw materials from the United States of America to produce generic drugs for the local market. Due to recent fluctuations in the foreign exchange market, the company’s management is concerned about the impact of exchange rate movements on its costs and profitability.
The company is expected to pay USD750,000 in three months for a shipment of Active Pharmaceutical Ingredients (APIs). GPL also exports locally produced herbal medicine called ‘Koo-pile’ to the Ghanaian community in Oklahoma, USA on credit basis. The company is expecting a receipt of USD250,000 in three months for a consignment exported a month ago.
GPL is considering two hedging strategies to manage the foreign exchange risk: a forward contract and a money market hedge.
The following financial information is available:

  • Current Spot Rate (GHS/USD): 12.00
  • 3-Month Forward Rate (GHS/USD): 12.20
  • 3-Month USD Interest Rate: 3% per annum
  • 3-Month GHS Interest Rate: 14% per annum
  • Expected Future Spot Rate in 3 Months (GHS/USD): 12.50

Required:
i) Determine the outcome of the two hedging techniques and recommend the appropriate technique to GPL based on your computations.
(9 marks)

ii) Explain THREE internal hedging techniques that GPL could use to manage its foreign exchange risk.

b) Technological advancements have significantly transformed financial markets, enhancing the way transactions are conducted, information is accessed and risks are managed. As financial institutions and individual investors increasingly depend on digital tools and innovative technologies, financial markets have become more efficient, accessible and transparent.

Required:
Explain FIVE positive impacts of technological development on financial markets.
(5 marks)

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  • 20 Marks

AA – Mar 2025 – L2 – Q3 – Audit Strategy

Discuss the content and relevance of an audit strategy memorandum in guiding the audit process.

a) The overall audit strategy sets the scope, timing and direction of the audit and guides the development of a more detailed plan. Audit plan converts the audit strategy into a more detailed plan and includes the nature, timing and extent of audit procedures to be performed by the engagement team members in order to obtain sufficient and appropriate audit evidence to reduce audit risk to an acceptable level. Required: Discuss the content of an audit strategy memorandum and its relevance to an audit.

b) Kalomo & Partners, an audit firm, has decided to enhance its audit procedures by integrating Artificial Intelligence (AI) technologies. The firm aims to leverage on AI to audit financial data and transactions more efficiently and effectively. As part of this initiative, the audit team is exploring how AI can be used to analyse large datasets, identify anomalies, and improve the accuracy of their audit findings. The management of Kalomo & Partners is seeking to understand the best practices for using AI in auditing and the potential challenges they may encounter. The firm wants to ensure that the integration of AI aligns with auditing standards and enhances the overall quality of their audit processes.

Required:

i) Explain how AI can be utilised in auditing financial data and transactions.

ii) State TWO potential benefits of using AI in the audit process of Kalomo & Partners.

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  • 10 Marks

AAA – Nov 2024 – L3 – Q5a – Roles of an Audit Committee in Corporate Governance

Explain four roles of an audit committee in compliance with good corporate governance practices.

An Audit Committee is a sub-group of a company’s Board of Directors responsible for the oversight of the financial reporting and disclosure process. The duties and responsibilities of the Audit Committee greatly contribute to good corporate governance practices of a company.

Required:
Explain FOUR roles of an Audit Committee in compliance with good corporate governance practices.

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  • 15 Marks

AA – Nov 2024 – L2 – Q3a – Management’s Expert and Audit Evidence

Explain the term "management’s expert" and four factors to consider before relying on their work as audit evidence.

Question:
ISA 500: Audit Evidence provides guidance for auditors intending to rely on the work of a management’s expert. If the information to be used as audit evidence has been prepared using the work of a management’s expert, the auditor must evaluate the management’s expert.

Required:
i) Explain the term “management’s expert.” 
ii) Explain FOUR factors to consider before relying on the work of a management’s expert as audit evidence.

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  • 5 Marks

AA – Nov 2024 – L2 – Q2b – Advantages of Outsourcing Internal Audit

Explain the advantages and disadvantages of outsourcing the internal audit function.

As organisations look for ways to cut costs, the idea of outsourcing internal audit work goes on the agenda. While outsourcing may be appealing in theory, there are good reasons to keep internal audit in-house.

Required:
i) State TWO advantages of outsourcing the internal audit function. 
ii) State THREE disadvantages of outsourcing the internal audit function.

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  • 20 Marks

AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

The Kuramo Art Gallery and Museum (KAGM) is in the centre of a city that is popular with tourists. About 65% of its income comes from admission fees and annual memberships, and about 30% of its income comes from sponsorship of special exhibitions by companies. Most of the remaining income comes from a small cafe and gift shop in the art gallery and museum.
Admission fees come from sales of tickets to daily visitors and from annual membership subscriptions from ‘Friends of KAGM’ who are entitled to free entry to the art gallery and museum at any time.
Day tickets can be purchased by credit card in advance, by a telephone ‘hotline’ or at KAGM’s website on the Internet. Alternatively, day tickets can be bought with cash or credit card at the ‘door’ on the day of the visit. Reduced prices are available for children, students, and individuals aged over 65, and there are also special reduced-price ‘family tickets’ for two adults and two children.
Sponsorship arrangements are agreed up to 18 months in advance. Some corporate sponsors, particularly transport companies (bus companies and railway companies) sell advertising to KAGM.
The management of KAGM have identified the following applicable risks that need careful attention. They believe that these risks should be managed actively.

(i) There is a failure to attract more visitors because of the poor condition of many of the paintings in the art gallery and of the items in the museum. Paintings must be restored regularly because their condition deteriorates. KAGM has just one specialist restorer, who is unable to keep up with the required volume of work. The management of KAGM recognise that investment in new items and the restoration of existing items is inadequate, but blame the lack of income for the problem.
(ii) Some corporate sponsorship agreements may not be invoiced due to poor communication between the sponsors, KAGM’s sponsorship managers, and the accounts department of KAGM.
(iii) Some sponsorship agreements are not invoiced at their correct amount. This happens often when a sponsor is also a company that provides advertising for KAGM. Normal practice is for these sponsors to deduct their advertising charges from the amount they pay to KAGM in sponsorship. However, the accounts department in KAGM is not given the details of these set-off arrangements.
(iv) Some of the cash received from day visitors at the door may be stolen (or lost, or used by management for business expenses) and does not reach KAGM’s cashier.
(v) The on-line booking system for buying tickets in advance on the KAGM website is not always available because the website is ‘down’.

Required:

(a) Describe appropriate internal controls to manage each of the applicable risks described above. (15 Marks)
(b) Explain the financial statement risks that arise from each of these applicable risks. (5 Marks)

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  • 10 Marks

AFM – May 2017 – L3 – Q4a – Sources of finance and cost of capital

Explanation of Eurobonds, their advantages, and problems associated with their use in Ghana's international borrowing.

The government of Ghana has been borrowing in the international financial market by issuing “Eurobonds” to finance projects in Ghana. There has been a keen debate on the borrowing by the government.

Required:
i) As a Finance Officer, explain what Eurobond is all about. (3 marks)
ii) Identify THREE advantages that have been cited for the government using Eurobonds. (3 marks)
iii) Evaluate FOUR problems associated with the use of international borrowing, especially Eurobonds in Ghana. (4 marks)

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  • 6 Marks

AFM – Nov 2016 – L3 – Q2b – International investment and financing decisions

Compare the advantages and disadvantages of setting up a subsidiary versus licensing for KK Chemicals and suggest ways to mitigate blocked funds risk.

KK Chemicals Ltd, an Accra-based manufacturer of paints, sells its products only in Ghana. Currently, the company wants to expand into other African countries. The directors are considering two options: setting up its own subsidiary company to manufacture and sell the products or licensing a company based in the host country to manufacture and sell the products.

Required:
i) Advise the directors on TWO potential advantages and TWO disadvantages to KK Chemicals of setting up its own subsidiary company to handle production and sale in the host country as against licensing a company in the host country. (4 marks)

ii) Suppose KK Chemicals elects to set up a subsidiary in the host country. Suggest to the directors TWO ways of dealing with the risk of blocked funds. (2 marks)

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  • 12 Marks

AFM – May 2017 – L3 – Q2a – Discounted cash flow techniques

Use Macaulay duration method to choose the best bond option for ABE based on recovery period.

ABE has surplus cash which can be invested for at least five years. The company has consulted you to help them choose an investment that gives the shortest recovery period. The company presented the information on two types of bonds as follows:

Bond Redemption Nominal Value (GH¢) Redemption Value Coupon Rate (%) Price (GH¢)
A 5 years 1,000 At par 7.00 950
B 6 years 1,000 5% premium 7.50 1,010

Required:
Use the Macaulay Duration method to advise ABE on the best bond option to select for their investment. (12 marks)

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  • 15 Marks

AFM – May 2017 – L3 – Q1b – Application of option pricing theory in investment decisions

Explanation of variables for real option valuation and use of Black Scholes model to estimate value of the option to delay.

BigDaddy Ltd, a drug development company, has gained drug production permission for the manufacturing of a drug for Ebola, which will be developed over a three-year period. The resulting drug sales less costs have an expected net present value of GH¢4 million at a cost of capital of 10% per annum. BigDaddy Ltd has an option to acquire the ownership of the drug at an agreed price of GH¢24 million, which must be exercised within the next two years. Immediate preparatory and research would be risky, as the project has a volatility attaching to its net present value of 25%.

One source of risk is the potential for absolute control over Ebola by people taking good care of themselves. Within the next two years, the World Health Organization will make a pronouncement on whether the disease will be eradicated or not. The risk-free rate of interest is 5% per annum.

Required:
i) What are the variables that determine the value of a real option for BigDaddy Ltd? (5 marks)
ii) Estimate the value of the option to delay the start of the project for two years using the Black-Scholes option pricing model and comment upon your findings. Assume that the World Health Organization will make its announcement about the potential eradication of Ebola at the end of the two-year period. (10 marks)

 

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  • 3 Marks

AFM – May 2016 – L3 – Q4a – Hedging against financial risk: Non-derivative techniques, Economic environment for multinational

Outline three risk mitigation strategies that a company can adopt to reduce risks affecting profitability.

a) Booms and Bumps Limited has recently been registered as a multinational company dealing in the production and drilling of crude oil in the Oil and Gas industry. Due to uncertainties surrounding the future prospects of the industry, management has hired you as a financial consultant to conduct a risk assessment about the viability of the firm. In the course of the assessment, you constructed a risk register containing various risks that have the potential to affect negatively the profitability of the company.

Required:
Outline THREE basic strategies the management of the company can adopt to mitigate the impact of the risks. (3 marks)

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  • 5 Marks

AFM – May 2016 – L3 – Q2b – Hedging against financial risk: Non-derivative techniques, Hedging against financial risk: Derivatives

Describe four approaches that a company can use to hedge against foreign exchange risk.

b) As a trading company, Joewoka exports and imports merchandise in many countries for which it receives and makes payment in foreign currency. This exposes the company to foreign exchange risk.

As a Financial Consultant to the company, suggest FOUR approaches that the company can use to hedge against foreign exchange exposure. (5 marks)

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  • 10 Marks

CSEG – May 2019 – L2 – Q6a – Internal control and audit

Evaluate the objectives the Board of Events Tech seeks to achieve by establishing an internal audit department.

Events Tech is a growing media company that specializes in technological solutions for events planning. Events Tech has recently established an internal audit department, and the Board is keen for this new department to cover certain broad areas of the organization and add value to the organization.

Required:
Evaluate FIVE (5) objectives the Board of Events Tech seeks to achieve by establishing an internal audit department.

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  • 4 Marks

CSEG – May 2016 – L2 – Q4c – Strategic management in the globalised workplace

Explain two limitations associated with offshoring, focusing on potential drawbacks for firms engaging in this practice.

Explain TWO limitations that are associated with offshoring. (4 marks)

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  • 20 Marks

BMIS – May 2019 – L1 – Q2 – Introduction to business strategy

Explain the need for planning before embarking on a business venture and the advantages of a formal system of strategic planning.

TestCo Company Ltd (TCL) introduced a product, YZ Sap, into the North East Region market and the patronage was very encouraging. In a conversation with a friend, the Managing Director of TCL, Asembibeba, made a strong case for taking risks without necessarily planning for the outcome. In his opinion, introducing YZ Sap into the North East Region without a formal planning process and its positive outcome suggests that planning is not necessary when entering a new untapped market.

Required:

a) Write a note to Asembibeba explaining clearly FIVE (5) reasons why there is the need for planning before embarking on a business venture. (10 marks)

b) Write a second note to Asembibeba explaining FIVE (5) advantages of a formal system of strategic planning when embarking on a business venture. (10 marks)

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  • 10 Marks

BMIS – Nov 2023 – L1 – Q5a – The internet, cloud computing, IS security and blockchain

Explain five controls that an organization can adopt to provide security for its computer systems and stored data.

Computer systems are increasingly being exposed to security risks which threaten the security and integrity of the systems and data storage. The good news however is that these risks can greatly be minimised through a variety of controls which provide network and communication security.

Required: Explain FIVE (5) controls which could be adopted by an organisation to provide security for its computer systems and data stored.

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