PRACTICE CASE STUDY AND QUESTIONS
CertICM sample practice questions
1. Earnings before interest, tax, depreciation and amortisation (EBITDA) is a good proxy for measuring which of the following?
2. Which of the following is an example of ‘disruptive innovation’ which enables peer-to-peer lending using smart contracts?
3. Which of the following money market instruments can be traded on active secondary markets?
Select ALL that apply.
A.
B.
C.
D.
E.
Example Case Study
Happy Money (HM) is an EU-based retail finance provider of short-term loans between EUR1,000 and EUR15,000.
HM has decided to refine its cashflow forecasting process for loan repayments due from its customers. HM’s cash manager believes that the forecasting process currently being used is out of date and does not reflect current best practice.
HM’s business model is to raise funds in the wholesale financial markets which it then uses to provide credit to its own customers. The retail finance market is competitive, so efficiency is very important to HM as it operates on tight profit margins. It is therefore in HM’s interests to keep its own borrowing to a minimum and for the shortest terms that its cashflow will allow.
After due consideration, the cash manager intends to use the ‘distribution model’ cash forecasting technique in future in relation to HM’s customer loan repayments.
HM is categorised as a financial counterparty (FC) under European Market Infrastructure Regulation (EMIR). It is not required to meet EMIR’s clearing or margin obligations, but must meet the risk mitigation obligations for a FC as it has a small portfolio of interest rate derivatives and does not clear them through a central counterparty.
Question 4
Explain why cashflow forecasting is important for HM and how the ‘distribution model’ could help it to forecast customer loan repayments. (5 marks)