Cima F2 Exam Question No 36

Question No 36:

What is the forward rate agreements?

Forward rate agreements can be used to fix the interest charge on a floating rate loan.

Cima F2 Exam Question No 35

Question No 35:

What is forward contracts?

The holder of a forward contract is obliged to buy or sell a defined amount of a specific underlying asset, at a specified price at a specified future date. For example, a forward contract for foreign currency might require £100,000 to be exchanged for $150,000 in three months' time. Both parties to the contract have both a financial asset and a financial liability. For example, one party has the right to receive $150,000 and the obligation to pay £100,000.

Forward currency contracts may be used to minimise the risk on amounts receivable or payable in foreign currencies

Cima F2 Exam Question No 34

Question No 34:

What are the types of derivative?

• Forward - the obligation to buy or sell a defined amount of a specific underlying asset, at a specified price at a specified future date.
• Forward rate agreements - a contract to fix the interest charge on a floating rate loan.
• Futures contracts - the obligation to buy or sell a standard quantity of a specific underlying item at a specified future date.
• Swaps - an agreement to exchange periodic payments at specified intervals over a specified time period.
• Options - the right, but not the obligation, to buy or sell a specific underlying asset on or before a specified future date.

Cima F2 Exam Question No 33

Question No 33:

What is Swaps?

Two parties agree to exchange periodic payments at specified intervals over a specified time period. For example, in an interest rate swap, the parties may agree to exchange fixed and floating rate interest payments calculated by reference to a notional principal amount. This enables companies to keep a balance between their fixed and floating rate interest payments without having to change the underlying loans.

Cima F2 Exam Question No 32

Question No 32:

What is Accounting treatment of the commercial substance of a lease?
As the commercial substance of a finance lease is that the lessee is the effective owner of the asset the required accounting treatment is to:

• Record the asset as a non-current asset in the lessee's statement of financial position
• Record a liability for the lease payments payable to the lessor.