Currency, Interest, Liquidity and Credit Risk
Identification and measurement of market, liquidity, counterparty and credit exposures.
How to study CIMA Strategic Level
Secure E3, P3 and F3 knowledge before practising integrated long-term judgement and professional communication. Static study assets do not reproduce all objective-test interactions or the pre-seen, unseen information, locked written sections and human marking of the Strategic Case Study.
Core concepts
Concept 1
Distinguish transaction, translation and economic currency exposure.
Exam cue: Define the amount, currency, timing and certainty of the exposure.
Concept 2
Measure interest-rate, liquidity and refinancing exposure.
Exam cue: Separate accounting volatility from cash-flow and value risk.
Concept 3
Assess counterparty and credit concentration.
Exam cue: Aggregate common counterparties and correlated exposures.
Risk pitfalls and guardrails
Hedging a forecast exposure without testing its probability.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, evidence provenance, stakeholder effects, residual risk and whether the conclusion follows.
Treating translation exposure as identical to transaction cash flow.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, evidence provenance, stakeholder effects, residual risk and whether the conclusion follows.
Measuring liquidity only from a year-end balance.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, evidence provenance, stakeholder effects, residual risk and whether the conclusion follows.
Memory anchors
Transaction exposure
Risk that exchange-rate movements alter the home-currency value of contracted foreign-currency cash flows.
Economic exposure
Risk that exchange-rate changes alter long-term competitive cash flows and business value.
Liquidity risk
Risk that obligations cannot be met when due without unacceptable cost or loss.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A UK company will receive US$10 million from a confirmed sale in three months and reports in sterling. What transaction exposure exists before settlement?
A group consolidates the statements of a euro subsidiary into sterling. Exchange-rate movement changes reported net assets even though no cash is remitted. What exposure is this?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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