Schweser Mock 1am Book 2 ....a few questions difficult, currency, previous

hassan

I had a few questions about this mock. I found it very difficult.
1) Question number 6.
How can guaranteeing a return on a currency arbitrage trade not be a violation of misrepresentation? This does not make any sense to me, so if anyone can explain it i would appreciate it.
2) Question 16
Asks which method to use. We calculated a negative FCF in the previous question. Wouldnt a Negative FCF mean that we DONT want to use a FCF model? Again, i am confused and would greatly appreciate some clarification
Overall, exam was tough but i made several dumb mistakes. Gotta read the whole vignette and take more time (i finished with 40 min left)

sabre

ok makes sense. Thanks.

willsucceed

The currency trade is actually “riskless” since you are locking in the borrowing rate, the rate you are going to lend at, and the rate you will then convert the currency back at up front. If the forward price doesn’t accurately reflect the rates, then you can do the transaction, set it and forget it, and earn the arbitrage profit. Both the CFAI and Schweser call this type of profit “riskless.”
Revenues are growing faster than working capital & CAPX. This means FCF will be positive at some point in the future. Early FCF can be negative as long as they grow steadily and become positive later.
RI model is more for a firm that has persistently negative FCF without prospects of becoming positive, or very volatile FCF (neg one year, pos the other)