FIN3703 Assignment 1 (100% COMPLETE ANSWERS) Semester 1 2025

Corporate Treasury Management - FIN3703 Assignment 1 Semester 1 2025 ;100 % TRUSTED workings, Expert Solved, Explanations and Solutions. For assistance call or W.h.a.t.s.a.p.p us on ...(.+.2.5.4.7.7.9.5.4.0.1.3.2)........... SECTION A QUESTION 1 (2) Treasury management is executed in any business, irrespective of its size, structure, or industry. Which of the following activities does not fall directly under the corporate treasury management functions in business? a. The management of cash, liquidity, and banking relations. b. The management of the cost of capital, capital structure and dividend pay-out. c. The management of financial, operational, and strategic risks. d. Management of cash forecasting, cash surpluses and cash deficits. Circle the correct option below: 1. a and b 2. a and c 3. b and c 4. a and d Question 2 Which of the following best describes the financial strategy Sparks Ltd is planning to implement by building a local assembly line? a) Capital expenditure investment b) Short-term working capital financing c) Debt restructuring d) Equity financing Question 3 How can Sparks Ltd mitigate foreign exchange risk when purchasing components from overseas suppliers? a) Investing in local manufacturing equipment b) Using forward contracts or currency hedging c) Taking short-term loans in foreign currency d) Increasing local sales prices Question 4 Which of the following is not a risk associated with Sparks Ltd’s business model? a) Credit risk b) Liquidity risk c) Interest rate risk d) Property depreciation risk Question 5 If Sparks Ltd wants to minimize the effect of fluctuating interest rates on its financing, which financial instrument would be most suitable? a) Floating-rate loan b) Fixed-rate loan c) Treasury bill investment d) Commercial paper Question 6 Why is a revolving credit facility beneficial for Sparks Ltd’s working capital financing? a) It allows access to funds as needed b) It provides long-term capital investments c) It reduces the risk of foreign exchange fluctuations d) It guarantees fixed interest rates Question 7 What is the main risk Sparks Ltd faces by taking out a loan of R2 million at a fixed interest rate of 11% per annum? a) Liquidity risk b) Credit risk c) Interest rate risk d) Counterparty risk Question 8 How can Sparks Ltd reduce its liquidity risk? a) Increase inventory purchases b) Extend credit terms to customers c) Implement cash flow forecasting d) Increase long-term investments Question 9 Which real-world JSE-listed company is a good example of managing credit risk through limited credit offerings? a) Sasol Ltd b) Shoprite Holdings Ltd c) Naspers Ltd d) Capitec Bank Question 10 Sparks Ltd faces operational risk in which of the following scenarios? a) Delays in supply chain logistics b) High customer default rates c) Rising foreign exchange rates d) Declining interest rates Question 11 If Sparks Ltd secures additional funding from equity investors instead of loans, which risk would it most likely reduce? a) Interest rate risk b) Liquidity risk c) Credit risk d) Foreign exchange risk Question 12 Which financial metric is most important for Sparks Ltd when managing its working capital efficiently? a) Return on assets (ROA) b) Earnings per share (EPS) c) Current ratio d) Price-to-earnings (P/E) ratio Question 13 If the interest rate on the revolving credit facility increases from 12.2% to 15%, what risk does Sparks Ltd face? a) Credit risk b) Liquidity risk c) Interest rate risk d) Market risk Question 14 Which risk is least likely to affect Sparks Ltd directly? a) Political risk b) Foreign exchange risk c) Operational risk d) Industry-specific risk Question 15 Which of the following best describes foreign exchange risk? a) The risk of a business losing revenue due to changing interest rates b) The risk that suppliers may not be able to deliver inventory c) The risk that currency fluctuations will affect purchasing costs d) The risk that a company may not have enough liquid cash for daily operations Question 16 If Sparks Ltd delays its expansion plans due to financial constraints, what risk does this decision primarily relate to? a) Market risk b) Credit risk c) Liquidity risk d) Reputational risk Question 17 Which of the following risk mitigation strategies is best for managing Sparks Ltd’s interest rate risk? a) Taking a fixed-rate loan b) Using a foreign exchange forward contract c) Extending supplier credit terms d) Increasing cash reserves Question 18 Which of the following best describes liquidity risk? a) The risk that a company may not have enough cash to meet obligations b) The risk that customers may default on credit payments c) The risk of currency fluctuations affecting the cost of imports d) The risk of unexpected increases in loan interest rates Question 19 Which JSE-listed company has successfully managed its liquidity risk through asset sales and cash flow improvements? a) MTN Group b) Sasol Ltd c) Woolworths Holdings d) Standard Bank Question 20 If Sparks Ltd wants to hedge against foreign exchange risk, what financial strategy should it use? a) Taking on additional debt financing b) Using forward contracts or currency swaps c) Increasing local production and reducing imports d) Raising product prices in local markets SECTION B Question 1 (10 Marks) Sparks Ltd has secured a R2 million loan from Standard Bank at a fixed interest rate of 11% per annum. Given its plan to build a local assembly line, discuss the advantages and disadvantages of financing this expansion through debt rather than equity. Provide examples from JSE-listed companies to support your answer. Question 2 (10 Marks) The company imports components from overseas, which exposes it to foreign exchange risk. Explain how fluctuations in the South African Rand (ZAR) against foreign currencies can impact Sparks Ltd’s financial position. Suggest two financial instruments that can be used to mitigate foreign exchange risk and provide a real-world example of a South African company that has successfully managed currency risk. Question 3 (10 Marks) Sparks Ltd has secured a revolving credit limit of R170,000 from Capitec Bank at an interest rate of 12.2% per annum. If the company utilizes 30% of the credit facility for 45 days, calculate the total interest payable. Show all calculations and explain the impact of short-term borrowing on the company’s liquidity management.