Free CIMA CIMAPRO19-CS3-1 Questions

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You have received the following email from Marcus Svenson, Finance Director
From Marcus Svenson, Finance Director
To Senior Finance Manager
FW Pricing
Hi,
I am forwarding an email from Sarah Johns.
Sarah has not been with us for very long and this is her first experience of dealing with a currency
price movement.
I am really busy, so I need you to respond to her requests. Please email her as soon as possible.
Marcus
From Sarah Johns, Marketing Director
To Marcus Svenson, Finance Director
Subject USD movement
Hi Marcus,
A lot of our biggest customers are threatening to cancel orders unless we reduce our selling prices.
Timber and associated products are commodity items that are priced in USD, so I thought that our
prices would automatically remain competitive regardless of what happened to the USD. I am
particularly confused over domestic sales, because many of the customers who have threatened to
cancel are based in this country and we invoice them in M$.
Please help me to understand why the M$/USD exchange rate can affect our competitive position in
this way.
I also wish to know why you have chosen to do nothing to hedge against this risk. If you look at the
attached article you will see that the USD is an issue in the business news.
Sarah

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Wodd’s Chief Executive, Peter Sorchi has stopped you in the corridor
"This weak USD is really causing us some serious problems. I think that it is only a matter of time
before the stock market starts to get nervous and I am worried that our share price will fall in the
near future. Thank goodness it does not appear to have fallen by much so far.
I would like to brief the Board on two main issues tomorrow. Firstly, what can we do as a Board in
order to minimise the negative impact of the weak USD on our share price? Secondly, we know the
identities of the key investment analysts who deal with our industry. Would it be a good idea for us
to brief them? Please also consider the ethical issues arising from both of these topics as well as the
more technical matters.
Please let me have a copy of your briefing notes in advance. I need to be able to sound convincing at
the meeting. I’ll also have my secretary refer you to a really helpful blog."

You are sitting in your office when you hear Marcus Svenson, the Finance Director, speaking on the
telephone. You can hear only Marcus’ side of the conversation
"Hello, I would like to speak to Sally Walker please. It is Marcus Svenson here. (pause)
Hi Sally, you contacted me six months ago to discuss a job opportunity that you thought I’d be
suitable for. I said that I didn’t wish to pursue it at that time because I was committed to Wodd.
Things have changed since then and I would like to be considered for a finance directorship in
another company. (pause)
Yes, I’m still with Wodd. (pause)
Yes, I realise that there was an unfortunate story in the business press about the problems that the
weak USD is causing us, but there was very little that I could do to prevent that. (pause)
I am sorry to hear that. I had hoped to move on." (sound of telephone hanging up and door opening)
Marcus discovers that you are sitting at your desk and realises that you would have heard his side of
the call.
"Please don’t tell anybody what you heard. Would you regard it as unethical to respect my privacy?
I suspect that the CEO knows that I am thinking of leaving. He commented on the need for Board
members to be loyal to Wodd at the last Board meeting. But don’t you agree that the shareholders
can better protect themselves against currency fluctuations than the directors?
The crazy thing is that I suspect that the Chairman will dismiss me next month. If that happens, I get
a year’s salary as a severance package. That will really annoy the shareholders. How can I justify
accepting the severance package if I am effectively being dismissed for failing to manage Wodd’s
finances properly?
I need to explain at the next Board meeting why it would have been difficult to evaluate the risk of
the USD weakening. According to an article I read, it has been picked up as a serious problem for us.
How would you advise me to explain that?"

You have received the following email from Marcus Svenson, Finance Director
From Marcus Svenson, Finance Director
To Senior Finance Manager
Subject Investment opportunity
Hi,
The Board is considering an investment opportunity to buy a forest in Bravador, a country in South
Americ
a. This will be a major expansion and will also enable us to diversify into new lines. For example, the
forest contains lots of hardwood varieties that we could sell to companies in the double glazing
industry or to furniture manufacturers. I downloaded the attached extract from an online
encyclopaedia for your information.
The forest that we are planning to buy has not been used for commercial purposes until now. The
land belonged to the Government for many years and it has been left to grow naturally. The
Government is now keen to sell the land and has agreed that it may be used for commercial forestry
purposes.
This investment will enable us to increase our output of softwoods by up to 20% per year, in addition
to enabling us to enter the hardwood market.
I need two things from you. I need you to recommend a suitable approach to managing our
relationship with the Bravadorian Government. I also need you to identify and explain the political
risks that will remain even if we succeed in creating a sound relationship with the Government.
Marcus
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Peter Sorchi, Wodd’s Chief Executive has stopped you in the corridor
"We signed a memorandum of understanding with the Bravadorian Government last night.
Effectively, we are now the new owners of a forest in a new continent for us. It has already made it
onto the business pages in the press.
Once the formalities are completed, we will be entering into new commercial territory. Our
surveyors have looked at the first area that we intend to develop and there is a lot more hardwood
than we first expected. That is good news in a way because it can be sold at a premium, but we don’t
have any experience of selling hardwood and we are hardly going to pulp it for MDF or paper. I need
you to identify the changes that we will have to make and to recommend how best to manage them.
The funding arrangements are still being worked out. Bravador’s banks are not in a position to fund a
transaction of this size and none of the other banks that we have approached are prepared to lend to
us. We will need to raise additional equity. I realise that we would normally make a rights issue, but I
think that it would be simpler and cheaper to suspend the dividend for a year, which would cover
most of the purchase price in itself. Please advise me on the advantages and disadvantages of doing
that.
It would be ideal if you could let me have a briefing paper on both of these matters urgently."
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