CIPS Exam L4M7 Topic 4 Question 51 Discussion

Actual exam question for CIPS's L4M7 exam

Question #: 51
Topic #: 4

Amanda is the purchasing manager for AB Construction based in France. She is considering purchasing an asset from overseas but knows she must account for fluctuations in exchange rates in the contract. Is Amanda correct?

ANo, as it will be better to purchase the asset in AB Construction's local currency as it would be efficient and more stable

BYes, as AB Construction could pay more for the asset than intended and Amanda should include a currency fluctuation clause

CNo, as the price can be re-negotiated post-contract sign-off by AB Construction and the supplier

DYes, as Amanda will be able to decide the currency exchange rates to be used

Show Suggested Answer

Suggested Answer: B

Including a currency fluctuation clause protects against exchange rate volatility, which can increase the final cost if the currency depreciates. Whole-life asset management often incorporates such risk management measures to ensure cost predictability and avoid unanticipated financial impact on long-term projects.

by Afton at Dec 08, 2024, 07:03 AM

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Frederick

5 days ago

Option B is definitely the way to go. Exchange rate fluctuations can really mess up the budget, and including a currency clause is just good business sense.

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