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FinancialManagement (FM)Syllabus and study guide

September 2019 to June 2020

Financial Management (FM)

© ACCA 2019-2020 All rights reserved.

Summary of content

Introduction1. Intellectual levels2. Learning hours and educational

recognition3. Guide to ACCA examination structure4. Guide to ACCA examination

assessment

Financial Management syllabus5. Relational diagram linking Financial

Management with other exams6. Overall aim of the syllabus7. Main capabilities8. Rationale9. Approach to examining the syllabus10. The syllabus

Financial Management studyguide

11. Detailed study guide



1.Intellectual levels

The syllabus is designed toprogressively broaden and deepen theknowledge, skills and professionalvalues demonstrated by the student ontheir way through the qualification.

The specific capabilities within thedetailed syllabuses and study guides areassessed at one of three intellectual orcognitive levels:

Level 1: Knowledge andcomprehension

Level 2: Application and analysisLevel 3: Synthesis and evaluation

Very broadly, these intellectual levelsrelate to the three cognitive levels atwhich the Applied Knowledge,the Applied Skills and the StrategicProfessional examsare assessed.

Each subject area in the detailed studyguide included in this document is givena 1, 2, or 3 superscript, denotingintellectual level, marked at the end ofeach relevant learning outcome. Thisgives an indication of the intellectualdepth at which an area could beassessed within the examination.However, while level 1 broadly equateswith Applied Knowledge, level 2equates to Applied Skills and level 3 toStrategic Professional, some lower levelskills can continue to be assessed asthe student progresses through eachlevel. This reflects that at each stage ofstudy there will be a requirement tobroaden, as well as deepen capabilities.It is also possible that occasionally somehigher level capabilities may beassessed at lower levels

2.Learning hours andeducationrecognition

The ACCA qualification does notprescribe or recommend any particularnumber of learning hours forexaminations because study andlearning patterns and styles vary greatlybetween people and organisations. Thisalso recognises the wide diversity ofpersonal, professional and educationalcircumstances in which ACCA studentsfind themselves.

As a member of the InternationalFederation of Accountants, ACCA seeksto enhance the education recognition ofits qualification on both national andinternational education frameworks, andwith educational authorities and partnersglobally. In doing so, ACCA aims toensure that its qualification is recognisedand valued by governments, regulatoryauthorities and employers across allsectors. To this end, ACCA qualificationis currently recognised on the educationframeworks in several countries. Pleaserefer to your national educationframework regulator for furtherinformation.

Each syllabus is organised into mainsubject area headings which are furtherbroken down to provide greater detail oneach area.



3.Guide to ACCAexaminationstructure anddelivery mode

The structure and delivery mode ofexaminations varies.

Applied KnowledgeThe Applied Knowledge examinationscontain 100% compulsory questions toencourage candidates to study acrossthe breadth of each syllabus. These areassessed by a two-hour computer basedexamination.

Applied SkillsThe Corporate and Business Law examis a two-hour computer-based objectivetest examination for English and Global.For the format and structure of theCorporate and Business Law orTaxation variant exams, refer to the‘Approach to examining the syllabus’ insection 9 of the relevant syllabus andstudy guide.

The other Applied Skills examinations(PM, TX-UK, FR, AA, and FM)contain a mix of objective and longertype questions with a duration of threehours for 100 marks. These areassessed by a three hour computer-based exam. Prior to the start of eachexam there will be time allocated forstudents to be informed of the examinstructions.

The longer (constructed response)question types used in the Applied Skillsexams (excluding Corporate andBusiness Law) require students toeffectively mimic what they do in theworkplace. Students will need to use arange of digital skills and demonstratetheir ability to use spreadsheets andword processing tools in producing their

answers, just as they would use thesetools in the workplace. Theseassessment methods allow ACCA tofocus on testing students’ technical andapplication skills, rather than, forexample, their ability to perform simplecalculations.

Strategic ProfessionalStrategic Business Leader is ACCA’scase study examination at StrategicProfessional and is examined as aclosed book exam of four hours,including reading, planning andreflection time which can be usedflexibly within the examination. There isno pre-seen information and all examrelated material, including caseinformation and exhibits are availablewithin the examination. StrategicBusiness Leader is an exam based onone main business scenario whichinvolves candidates completing severaltasks within which additional materialmay be introduced. All questions arecompulsory and each examination willcontain a total of 80 technical marks and20 Professional Skills marks.

The other Strategic Professional examsare all of three hours and 15 minutesduration. All contain two Sections andall questions are compulsory. Theseexams all contain four professionalmarks.

For September and December 2019sessions, all Strategic Professionalexams will be assessed by paper basedexamination. From March 2020, theseexams will become available bycomputer based examination. Moredetail regarding what is available in yourmarket will be on the ACCA globalwebsite.

With Applied Knowledge and AppliedSkills exams now assessed by computerbased exam, ACCA is committed to



continuing on its journey to assess allexams within the ACCA Qualificationusing this delivery mode.

The question types used at StrategicProfessional again require students toeffectively mimic what they would do inthe workplace and, with the move toCBE, these exams again offer ACCA theopportunity to focus on the application ofknowledge to scenarios, using a rangeof tools – spreadsheets, wordprocessing and presentations - not onlyenabling students to demonstrate theirtechnical and professional skills but alsotheir use of the technology available totoday’s accountants.

ACCA encourages students to take timeto read questions carefully and to plananswers but once the exam time hasstarted, there are no additionalrestrictions as to when candidates maystart producing their answer.

Time should be taken to ensure that allthe information and exam requirementsare properly read and understood.

The pass mark for all ACCAQualification examinations is 50%.



4.Guide to ACCAexaminationassessment

ACCA reserves the right to examine anylearning outcome contained within thestudy guide. This includes knowledge,techniques, principles, theories, andconcepts as specified. For the financialaccounting, audit and assurance, lawand tax exams except where indicatedotherwise, ACCA will publishexaminable documents once a year toindicate exactly what regulations andlegislation could potentially be assessedwithin identified examination sessions.

For most examinations (not tax),regulations issued or legislation passedon or before 31 August annually, will beexaminable from 1 September of thefollowing year to 31 August of the yearafter that. Please refer to theexaminable documents for the exam(where relevant) for further information.

Regulation issued or legislation passedin accordance with the above dates maybe examinable even if the effective dateis in the future.

The term issued or passed relates towhen regulation or legislation has beenformally approved.

The term effective relates to whenregulation or legislation must be appliedto an entity transactions and businesspractices.

The study guide offers more detailedguidance on the depth and level atwhich the examinable documents will beexamined. The study guide shouldtherefore be read in conjunction with theexaminable documents list.

For UK tax exams, examinations fallingwithin the period 1 June to 31 March will

generally examine the Finance Actwhich was passed in the previous year.Therefore, exams falling in the period 1June 2019 to 31 March 2020 willexamine the Finance Act 2018 and anyexaminable legislation which is passedoutside the Finance Act before 31 July2018.

For additional guidance on theexaminability of specific tax rules andthe depth in which they are likely to beexamined, reference should be made tothe relevant Finance Act article writtenby the examining team and published onthe ACCA website.

None of the current or impendingdevolved taxes for Scotland, Wales, andNorthern Ireland is, or will be,examinable.



5.Relational diagram linking Financial Managementwith other exams

This diagram shows links between this exam and other exams preceding orfollowing it. Some exams are directly underpinned by other exams such asAdvanced Financial Management by Financial Management. This diagram indicateswhere students are expected to have underpinning knowledge and where it wouldbe useful to review previous learning before undertaking study.

6.Overall aim of the syllabus

This syllabus and study guide is designed to help with planning study and to providedetailed information on what could be assessed in any examination session.

The aim of the syllabus is to develop the knowledge and skills expected of a financemanager, in relation to investment, financing, and dividend policy decisions.



7.Main capabilities

On successful completion of this exam, candidates should be able to:

A Discuss the role and purpose of the financial management function

B Assess and discuss the impact of the economic environment on financialmanagement

C Discuss and apply working capital management techniques

D Carry out effective investment appraisal

E Identify and evaluate alternative sources of business finance

F Discuss and apply principles of business and asset valuations

G Explain and apply risk management techniques in business.

This diagram illustrates the flows and links between the main capabilities of thesyllabus and should be used as an aid to planning teaching and learning in astructured way.



8.Rationale

The syllabus for Financial Managementis designed to equip candidates with theskills that would be expected from afinance manager responsible for thefinance function of a business. Itprepares candidates for more advancedand specialist study in AdvancedFinancial Management.

The syllabus, therefore, starts byintroducing the role and purpose of thefinancial management function within abusiness. Before looking at the threekey financial management decisions ofinvesting, financing, and dividend policy,the syllabus explores the economicenvironment in which such decisions aremade.

The next section of the syllabus is theintroduction of investing decisions. Thisis done in two stages - investment in(and the management of) workingcapital and the appraisal of long-terminvestments.

The next area introduced is financingdecisions. This section of the syllabusstarts by examining the various sourcesof business finance, including dividendpolicy and how much finance can beraised from within the business. It alsolooks at the cost of capital and otherfactors that influence the choice of thetype of capital a business will raise. Theprinciples underlying the valuation ofbusiness and financial assets, includingthe impact of cost of capital on the valueof business, is covered next.

The syllabus finishes with anintroduction to, and examination of, riskand the main techniques employed inmanaging such risk.



9.Approach toexamining thesyllabus

The syllabus is assessed by a three-hour computer based examination.

All questions are compulsory. The examwill contain both computational anddiscursive elements.

Some questions will adopt ascenario/case study approach.

Prior to the start of the exam candidatesare given an extra 10 minutes to readthe exam instructions.

Section A of the computer-based examcomprises 15 objective test questions of2 marks each plus additional content asper below.

Section B of the computer-based examcomprises three questions eachcontaining five objective test questionsplus additional content as per below.

Section C of the exam comprises two20-mark constructed responsequestions. The two 20-mark questionswill mainly come from the workingcapital management, investmentappraisal and business finance areas ofthe syllabus. The section A and sectionB questions can cover any areas of thesyllabus.

Candidates are provided with a formulaesheet and tables of discount and annuityfactors.



10.The syllabus

A Financial management function

1. The nature and purpose of financialmanagement

2. Financial objectives and relationshipwith corporate strategy

3. Stakeholders and impact oncorporate objectives

4. Financial and other objectives in not-for-profit organisations

B Financial managementenvironment

1. The economic environment forbusiness

2. The nature and role of financialmarkets and institutions

3. The nature and role of moneymarkets

C Working capital management

1. The nature, elements andimportance of working capital

2. Management of inventories,accounts receivable, accountspayable and cash

3. Determining working capital needsand funding strategies

D Investment appraisal

1. Investment appraisal techniques

2. Allowing for inflation and taxation inDCF

3. Adjusting for risk and uncertainty ininvestment appraisal

4. Specific investment decisions (leaseor buy, asset replacement, capitalrationing)

E Business finance

1. Sources of, and raising, businessfinance

2. Estimating the cost of capital

3. Sources of finance and their relativecosts

4. Capital structure theories andpractical considerations

5. Finance for small- and medium-sized entities (SMEs)

F Business valuations

1. Nature and purpose of the valuationof business and financial assets

2. Models for the valuation of shares

3. The valuation of debt and otherfinancial assets

4. Efficient market hypothesis (EMH)and practical considerations in thevaluation of shares

G Risk management

1. The nature and types of risk andapproaches to risk management



2. Causes of exchange rate differencesand interest rate fluctuations

3. Hedging techniques for foreigncurrency risk

4. Hedging techniques for interest raterisk



11.Detailed study guide

A Financial managementfunction

1. The nature and purpose offinancial management

a) Explain the nature and purpose offinancial management.[1]

b) Explain the relationship betweenfinancial management and financialand management accounting.[1]

2. Financial objectives and therelationship with corporatestrategy

a) Discuss the relationship betweenfinancial objectives, corporateobjectives and corporate strategy.[2]

b) Identify and describe a variety offinancial objectives, including: [2]

i) shareholder wealth maximisation

ii) profit maximisation

iii) earnings per share growth.

3. Stakeholders and impact oncorporate objectives

a) Identify the range of stakeholdersand their objectives. [2]

b) Discuss the possible conflictbetween stakeholder objectives. [2]

c) Discuss the role of management inmeeting stakeholder objectives,including the application of agencytheory.[2]

d) Describe and apply ways ofmeasuring achievement of corporateobjectives including:[2]

i) ratio analysis, using appropriateratios such as return oncapital employed, return onequity, earnings per share anddividend per share

ii) changes in dividends and shareprices as part of totalshareholder return.

e) Explain ways to encourage theachievement of stakeholderobjectives, including: [2]

i) managerial reward schemessuch as share options andperformance-related pay

ii) regulatory requirements such ascorporate governance codes ofbest practice and stockexchange listing regulations.

4. Financial and other objectives innot-for-profit organisations

a) Discuss the impact of not-for-profitstatus on financial and otherobjectives.[2]

b) Discuss the nature and importanceof Value for Money as an objectivein not-for-profit organisations.[2]

c) Discuss ways of measuring theachievement of objectives in not-for-profit organisations.[2]

B Financial managementenvironment

1. The economic environment forbusiness

a) Identify and explain the mainmacroeconomic policy targets.[1]

b) Define and discuss the role of fiscal,monetary, interest rate andexchange rate policies in achievingmacroeconomic policy targets.[1]



c) Explain how government economicpolicy interacts with planning anddecision-making in business.[2]

d) Explain the need for, and theinteraction with, planning anddecision-making in business of: [1]

i) competition policyii) government assistance for

businessiii) green policiesiv) corporate governance

regulation.[2]

2. The nature and role of financialmarkets and institutions

a) Identify the nature and role of moneyand capital markets, both nationallyand internationally.[2]

b) Explain the role of financialintermediaries.[1]

c) Explain the functions of a stockmarket and a corporate bondmarket.[2]

d) Explain the nature and features ofdifferent securities in relation to therisk/return trade-off.[2]

3. The nature and role of moneymarkets

a) Describe the role of the moneymarkets in:[1]

i) providing short-term liquidity tothe private sector and the publicsector

ii) providing short-term tradefinance

iii) allowing an organisation tomanage its exposure to foreigncurrency risk and interest raterisk.

b) Explain the role of banks and otherfinancial institutions in the operationof the money markets.[2]

c) Explain the characteristics and roleof the principal money marketinstruments:[2]

i) interest-bearing instrumentsii) discount instrumentsiii) derivative products.

C Working capitalmanagement

1. The nature, elements andimportance of working capital

a) Describe the nature of workingcapital and identify its elements.[1]

b) Identify the objectives of workingcapital management in terms ofliquidity and profitability, and discussthe conflict between them.[2]

c) Discuss the central role of workingcapital management in financialmanagement.[2]

2. Management of inventories,accounts receivable, accountspayable and cash

a) Explain the cash operating cycle andthe role of accounts payable andaccounts receivable.[2]

b) Explain and apply relevantaccounting ratios, including: [2]

i) current ratio and quick ratioii) inventory turnover ratio, average

collection period and averagepayable period

iii) sales revenue/net workingcapital ratio.

c) Discuss, apply and evaluate the useof relevant techniques in managinginventory, including the Economic



Order Quantity model and Just-in-Time techniques.[2]

d) Discuss, apply and evaluate the useof relevant techniques in managingaccounts receivable, including:i) assessing creditworthiness [1]

ii) managing accounts receivable [1]

iii) collecting amounts owing [1]

iv) offering early settlementdiscounts [2]

v) using factoring and invoicediscounting [2]

vi) managing foreign accountsreceivable.[2]

e) Discuss and apply the use ofrelevant techniques in managingaccounts payable, including:i) using trade credit effectively [1]

ii) evaluating the benefits ofearly settlement and bulk

purchase discounts [2]

iii) managing foreign accountspayable.[1]

f) Explain the various reasons forholding cash, and discuss and applythe use of relevant techniques inmanaging cash, including:[2]

i) preparing cash flow forecasts todetermine future cash flows andcash balances

ii) assessing the benefits ofcentralised treasurymanagement and cash control

iii) cash management models, suchas the Baumol model and theMiller-Orr model

iv) investing short-term.

3. Determining working capitalneeds and funding strategies

a) Calculate the level of working capitalinvestment in current assets anddiscuss the key factors determiningthis level, including:[2]

i) the length of the working capitalcycle and terms of trade

ii) an organisation’s policy on thelevel of investment in currentassets

iii) the industry in which theorganisation operates.

b) Describe and discuss the key factorsin determining working capitalfunding strategies, including:[2]

i) the distinction betweenpermanent and fluctuatingcurrent assets

ii) the relative cost and risk of short-term and long-term finance

iii) the matching principleiv) the relative costs and benefits of

aggressive, conservative andmatching funding policies

v) management attitudes to risk,previous funding decisions andorganisation size.[1]

D Investment appraisal

1. Investment appraisal techniques

a) Identify and calculate relevant cashflows for investment projects.[2]

b) Calculate payback period anddiscuss the usefulness of paybackas an investment appraisalmethod.[2]

c) Calculate discounted payback anddiscuss its usefulness as aninvestment appraisal method.[2]

d) Calculate return on capitalemployed (accounting rate ofreturn) and discuss its usefulnessas an investment appraisalmethod.[2]

e) Calculate net present value anddiscuss its usefulness as aninvestment appraisal method.[2]



f) Calculate internal rate of return anddiscuss its usefulness as aninvestment appraisalmethod.[2]

g) Discuss the superiority ofdiscounted cash flow (DCF)methods over non-DCF methods.[2]

h) Discuss the relative merits of NPVand IRR.[2]

2. Allowing for inflation andtaxation in DCF

a) Apply and discuss the real-termsand nominal-terms approaches toinvestment appraisal.[2]

b) Calculate the taxation effects ofrelevant cash flows, including thetax benefits of tax-allowabledepreciation and the tax liabilities oftaxable profit.[2]

c) Calculate and apply before- andafter-tax discount rates.[2]

3. Adjusting for risk and uncertaintyin investment appraisal

a) Describe and discuss the differencebetween risk and uncertainty inrelation to probabilities andincreasing project life.[2]

b) Apply sensitivity analysis toinvestment projects and discuss theusefulness of sensitivity analysis inassisting investment decisions.[2]

c) Apply probability analysis toinvestment projects and discuss theusefulness of probability analysis inassisting investment decisions.[2]

d) Apply and discuss other techniquesof adjusting for risk and uncertaintyin investment appraisal, including:i) simulation [1]

ii) adjusted payback [1]

iii) risk-adjusted discount rates. [2]

4. Specific investment decisions(Lease or buy, assetreplacement, capital rationing)

a) Evaluate leasing and borrowing tobuy using the before- and after-taxcosts of debt.[2]

b) Evaluate asset replacementdecisions using equivalent annualcost and equivalent annualbenefit.[2]

c) Evaluate investment decisionsunder single-period capitalrationing, including:[2]

i) the calculation of profitabilityindexes for divisible investmentprojects

ii) the calculation of the NPV ofcombinations of non-divisibleinvestment projects

iii) a discussion of the reasons forcapital rationing.

E Business finance

1. Sources of, and raising, businessfinance

a) Identify and discuss the range ofshort-term sources of financeavailable to businesses, including:[2]

i) overdraftii) short-term loaniii) trade creditiv) lease finance.

b) Identify and discuss the range oflong-term sources of financeavailable to businesses, including:[2]

i) equity financeii) debt financeiii) lease financeiv) venture capital.



c) Identify and discuss methods ofraising equity finance, including:[2]

i) rights issueii) placingiii) public offeriv) stock exchange listing.

d) Identify and discuss methods ofraising short- and long-termIslamic finance, including[1]

i) major differences betweenIslamic finance and the otherforms of business finance.

ii) the concept of riba (interest) andhow returns are made byIslamic financial securities.

iii) Islamic financial instrumentsavailable to businessesincluding:i) murabaha (trade credit)ii) ijara (lease finance)iii) mudaraba equity finance)iv) sukuk (debt finance)v) musharaka (venture

capital).(note: calculations are not required)

e) Identify and discuss internalsources of finance, including:[2]

i) retained earningsii) increasing working capital

management efficiencyiii) the relationship between

dividend policy and the financingdecision

iv) the theoretical approaches to,and the practical influences on,the dividend decision, includinglegal constraints, liquidity,shareholder expectations andalternatives to cash dividends.

2. Estimating the cost of capital

a) Estimate the cost of equityincluding:[2]

i) application of the dividendgrowth model and discussion ofits weaknesses

ii) explanation and discussion ofsystematic and unsystematicrisk

iii) relationship between portfoliotheory and the capital assetpricing model (CAPM)

iv) application of the CAPM, itsassumptions, advantages anddisadvantages.

b) Estimating the cost of debt:i) irredeemable debtii) redeemable debtiii) convertible debtiv) preference sharesv) bank debt.

c) Estimating the overall cost of capitalincluding:[2]

i) distinguishing between averageand marginal cost of capital

ii) calculating the weighted averagecost of capital (WACC) usingbook value and market valueweightings.

3. Sources of finance and theirrelative costs

a) Describe the relative risk-returnrelationship and the relative costs ofequity and debt.[2]

b) Describe the creditor hierarchy andits connection with the relative costsof sources of finance.[2]

c) Identify and discuss the problem ofhigh levels of gearing.[2]

d) Assess the impact of sources offinance on financial position,financial risk and shareholderwealth using appropriate measures,including:[2]



i) ratio analysis using statement offinancial position gearing,operational and financial gearing,interest coverage ratio and otherrelevant ratios

ii) cash flow forecastingiii) leasing or borrowing to buy.

e) Impact of cost of capital oninvestments including:[2]

i) the relationship betweencompany value and cost ofcapital.

ii) the circumstances under whichWACC can be used ininvestment appraisal

iii) the advantages of the CAPMover WACC in determining aproject-specific cost of capital.

iv) the application of CAPM incalculating a project-specificdiscount rate.

4. Capital structure theories andpractical considerations

a) Describe the traditional view ofcapital structure and itsassumptions.[2]

b) Describe the views of Miller andModigliani on capital structure, bothwithout and with corporate taxation,and their assumptions.[2]

c) Identify a range of capital marketimperfections and describe theirimpact on the views of Miller andModigliani on capital structure.[2]

d) Explain the relevance of peckingorder theory to the selection ofsources of finance.[1]

5. Finance for small and mediumsized entities (SMEs)

a) Describe the financing needs ofsmall businesses.[2]

b) Describe the nature of the financingproblem for small businesses interms of the funding gap, thematurity gap and inadequatesecurity.[2]

c) Explain measures that may be takento ease the financing problems ofSMEs, including the responses ofgovernment departments andfinancial institutions.[1]

d) Identify and evaluate the financialimpact of sources of finance forSMEs, including sources alreadyreferred to in syllabus section E1and also [2]

i) Business angel financingii) Government assistanceiii) Supply chain financingiv) Crowdfunding / peer-to-peer

funding.

F Business valuations

1. Nature and purpose of thevaluation of business andfinancial assets

a) Identify and discuss reasons forvaluing businesses and financialassets.[2]

b) Identify information requirements forvaluation and discuss the limitationsof different types of information.[2]

2. Models for the valuation of shares

a) Discuss and apply asset-basedvaluation models, including:[2]

i) net book value (statement offinancial position) basis

ii) net realisable value basisiii) net replacement cost basis.

b) Discuss and apply income-basedvaluation models, including:[2]

i) price/earnings ratio method



ii) earnings yield method.

c) Discuss and apply cash flow-basedvaluation models, including:[2]

i) dividend valuation model and thedividend growth model

ii) discounted cash flow basis.

3. The valuation of debt and otherfinancial assets

a) Discuss and apply appropriatevaluation methods to:[2]

i) irredeemable debtii) redeemable debtiii) convertible debtiv) preference shares.

4. Efficient Market Hypothesis (EMH)and practical considerations inthe valuation of shares

a) Distinguish between and discussweak form efficiency, semi-strongform efficiency and strong formefficiency.[2]

b) Discuss practical considerations inthe valuation of shares andbusinesses, including:[2]

i) marketability and liquidity ofshares

ii) availability and sources ofinformation

iii) market imperfections and pricinganomalies

iv) market capitalisation.

c) Describe the significance of investorspeculation and the explanations ofinvestor decisions offered bybehavioural finance.[1]

G Risk Management

1. The nature and types of risk andapproaches to risk management

a) Describe and discuss different typesof foreign currency risk:[2]

i) translation riskii) transaction riskiii) economic risk.

b) Describe and discuss different typesof interest rate risk:[1]

i) gap exposureii) basis risk.

2. Causes of exchange ratedifferences and interest ratefluctuations

a) Describe the causes of exchangerate fluctuations, including:i) balance of payments [1]

ii) purchasing power parity theory [2]

iii) interest rate parity theory [2]

iv) four-way equivalence.[2]

b) Forecast exchange rates using:[2]

i) purchasing power parityii) interest rate parity.

c) Describe the causes of interest ratefluctuations, including: [2]

i) structure of interest rates andyield curves

ii) expectations theoryiii) liquidity preference theoryiv) market segmentation.

3. Hedging techniques for foreigncurrency risk

a) Discuss and apply traditional andbasic methods of foreign currencyrisk management, including:i) currency of invoice [1]

ii) netting and matching [2]

iii) leading and lagging [2]

iv) forward exchange contracts [2]

v) money market hedging [2]

vi) asset and liability management.[1]



b) Compare and evaluate traditionalmethods of foreign currency riskmanagement.[2]

c) Identify the main types of foreigncurrency derivatives used to hedgeforeign currency risk and explainhow they are used in hedging.[1]

(No numerical questions will be set onthis topic)

4. Hedging techniques for interestrate risk

a) Discuss and apply traditional andbasic methods of interest rate riskmanagement, including:i) matching and smoothing [1]

ii) asset and liability management [1]

iii) forward rate agreements.[2]

b) Identify the main types of interestrate derivatives used to hedgeinterest rate risk and explain howthey are used in hedging.[1]

(No numerical questions will be set onthis topic)



Summary of changes to Financial Management (FM)

ACCA periodically reviews its qualification syllabuses so that they fully meet theneeds of stakeholders such as employers, students, regulatory and advisory bodiesand learning providers.

Amendments /additions

There have been no amendments to the Financial Management (FM) study guidefrom the 2018 – 2019 study guide.

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