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CIMA Strategic F3 Question # 118 Topic 12 Discussion

F3 Exam Topic 12 Question 118 Discussion:
Question #: 118
Topic #: 12

A company is considering hedging the interest rate risk on a 3-year floating rate borrowing linked to the 12-month risk-free rate.

If the 12-month risk-free rate for the next three years is 2%, 3% and 4%, which of the following alternatives would result in the lowest average finance cost for the company over the three years?
A.

Enter into an interest rate swap at 3.1% fixed against 12-month risk-free rate.

B.

Enter into an interest rate cap at an annual premium of 0.533% and a cap of 3%,

C.

Enter into a zero-cost collar with a floor of 2.9% and a ceiling of 4%.

D.

Do not hedge.

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Actual exam question for CIMA F3 exam by Vega14130 at May 3, 2026, 2:00:50 PM

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