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A company prepares scenario and stress testing as part of risk management. The PRIMARY purpose of stress testing is to:
A
B
C
D
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2026 Statistics
Key Facts: ACCA AFM Exam
3h 15m
Exam Duration
ACCA AFM Exam Page
50 marks
Section A Case Study
ACCA AFM Exam Structure
20 marks
Professional Skills
ACCA AFM Professional Skills Guide
50%
Pass Mark
ACCA Exam Rules
~45%
Recent Pass Rate
ACCA Pass Rates
6 areas
Syllabus Areas A-F
ACCA AFM Syllabus
ACCA AFM is a 3 hour 15 minute computer-based, constructed-response exam at the Strategic Professional Options level. Section A is one compulsory 50-mark case study (40 technical plus 10 professional skills marks) and Section B is two 25-mark scenario questions (20 technical plus 5 professional skills marks each), totalling 100 marks with 20 marks for professional skills. The pass mark is 50%. The syllabus spans areas A to F: senior financial executive role, multinational economic environment, advanced investment appraisal (APV, real options), acquisitions and mergers, corporate reconstruction, and treasury and advanced risk management. Recent pass rates are about 45%, and the standard entry fee is roughly GBP 175.
Sample ACCA AFM Practice Questions
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1Under ACCA AFM, what is the primary financial objective that a senior financial executive of a listed company should pursue when advising the board?
A.Maximisation of shareholder wealth, typically measured by share price and dividends
B.Maximisation of accounting profit reported in the income statement
C.Minimisation of the company's effective tax rate each year
D.Maximisation of total revenue and market share
Explanation: AFM follows mainstream corporate finance theory: the senior financial executive's overriding objective for a listed firm is maximisation of shareholder wealth, captured by total shareholder return (share price growth plus dividends). Accounting profit can be manipulated and ignores risk and timing of cash flows.
2A multinational is considering its dividend policy. According to the residual theory of dividends, how much should the company pay out as a dividend?
A.Whatever cash remains after funding all positive-NPV projects from retained earnings
B.A fixed percentage of accounting profit every year regardless of investment needs
C.The maximum amount possible to signal confidence to the market
D.An amount equal to the prior year's dividend plus inflation
Explanation: The residual theory holds that dividends should be the residual cash left after the firm has financed all available positive-NPV investments using retained earnings, because retaining funds for value-creating projects is preferable to paying dividends and then raising costly new finance.
3In AFM, an agency conflict between shareholders and directors is BEST mitigated by which of the following arrangements?
A.Granting directors share options that vest based on long-term performance
B.Paying directors a fixed salary with no performance element
C.Allowing directors to set their own remuneration without a committee
D.Maximising short-term earnings to boost annual bonuses
Explanation: Agency theory recommends aligning directors' interests with shareholders' through performance-related, long-term incentives such as share options or shares that vest over time. This encourages decisions that build long-run shareholder value rather than personal short-term gain.
4A company has profit after tax of $40m, tax-allowable depreciation of $12m, and needs $18m of investment to maintain operations and comply with regulation. There are no other adjustments. What is the company's dividend capacity (free cash flow to equity available for dividends)?
A.$34m
B.$40m
C.$58m
D.$22m
Explanation: Dividend capacity is broadly profit after tax plus non-cash depreciation add-back less essential reinvestment: $40m + $12m - $18m = $34m. This represents the free cash flow to equity the firm could distribute without impairing operations.
5Which statement BEST describes the role of ethics and environmental, social and governance (ESG) considerations in a senior financial executive's decisions under the AFM syllabus?
A.They should be integrated into financial decisions because they affect long-term value and stakeholder relationships
B.They are irrelevant to financial decisions and should be ignored to maximise profit
C.They only matter for the marketing department, not finance
D.They should be addressed only if legally compelled, never voluntarily
Explanation: AFM treats ethics and ESG as integral to value creation. Sustainable, ethical and well-governed behaviour reduces risk, protects reputation, and supports long-term shareholder and stakeholder value, so the senior executive must integrate these factors into strategy.
6An integrated multinational treasury function is being considered. Which of the following is a key advantage of CENTRALISING treasury management?
A.Netting of intra-group balances reduces external transaction and hedging costs
B.Each subsidiary independently negotiates its own bank facilities
C.Foreign exchange exposures are managed separately in every country
D.Cash surpluses in one subsidiary cannot be used to fund deficits elsewhere
Explanation: Centralised treasury allows multilateral netting of intra-group receivables and payables, pooling of cash, and bulk hedging, which lowers external transaction costs, banking fees and currency-conversion costs while improving control over group-wide risk.
7According to purchasing power parity (PPP), if the inflation rate is 6% in country A and 2% in country B, what is the expected change in the spot exchange rate of currency A relative to currency B over one year?
A.Currency A is expected to depreciate by approximately 3.92% against currency B
B.Currency A is expected to appreciate by approximately 4% against currency B
C.The exchange rate is expected to remain unchanged
D.Currency B is expected to depreciate by approximately 6% against currency A
Explanation: PPP predicts the higher-inflation currency depreciates. Expected spot multiplier = (1.06/1.02) = 1.0392, so currency A weakens by about 3.92% against currency B. The currency with higher inflation loses purchasing power and value.
8Interest rate parity (IRP) states that the forward exchange rate between two currencies is determined primarily by which factor?
A.The differential in nominal interest rates between the two countries
B.The differential in corporate tax rates between the two countries
C.The relative size of the two countries' stock markets
D.The difference in unemployment rates between the two countries
Explanation: IRP holds that the forward premium or discount on a currency equals the interest rate differential between the two countries. The currency of the country with the higher interest rate trades at a forward discount, preventing risk-free arbitrage.
9A spot rate is A$1 = B$1.5000. Country A's interest rate is 8% and country B's is 3%. Using interest rate parity, what is the approximate 1-year forward rate (B$ per A$)?
A.B$1.4306
B.B$1.5728
C.B$1.5000
D.B$1.3920
Explanation: Forward = Spot x (1 + interest rate of counter currency)/(1 + interest rate of base currency) = 1.5000 x (1.03/1.08) = 1.4306. Currency A has the higher interest rate, so it trades at a forward discount (fewer B$ per A$).
10Which of the following is the BEST description of 'translation' (accounting) exposure for a multinational?
A.The risk that consolidated financial statements change value when foreign subsidiaries are restated into the parent's currency
B.The risk that a future foreign-currency transaction settles at an adverse rate
C.The risk that long-term competitiveness changes due to exchange rate movements
D.The risk that a counterparty defaults on a derivative contract
Explanation: Translation exposure arises on consolidation: foreign subsidiary assets, liabilities and results are restated into the parent currency, and exchange rate movements change the reported (book) figures even though no cash flow occurs. It is an accounting, not a cash, exposure.
About the ACCA AFM Practice Questions
Verified exam format metadata for ACCA Advanced Financial Management (AFM) is pending. The practice questions above remain available while official exam length, timing, passing score, fee, and administrator details are reviewed.