CA Final AFM Important Questions for January 2027 Exam

The CA Final January 2027 exam will test more than your ability to remember financial formulas. You need to recognise the right approach from the information given, apply the relevant concepts and present calculations accurately. Regular practice with CA Final Advanced Financial Management Questions can help you identify where you lose time and which topics need more revision.

PW supports CA Final preparation through its live and recorded classes, study resources, question practice and dedicated batches. Alongside your regular revision, solving important PW AFM questions and checking your approach against worked solutions can help you prepare for the different types of problems asked in the examination.

CA Final AFM Important Questions with Solutions

The following AFM Questions with Answers cover practical areas such as financial policy, external funding requirements and risk measurement. Try solving each question independently before checking the working steps.

1. An Indian company obtains the following exchange rate quotes (Rs. /$):

• Spot rate: 85.90/86.10

• 3-month forward rate: 86.00/86.25

• 6-month forward rate: 86.10/86.40

The company needs US dollar funds for six months. Determine whether the company should borrow in US dollars or Indian rupees.

The applicable interest rates are:

• 3-month interest rate: Rupee: 12%; Dollar: 6%

• 6-month interest rate: Rupee: 11.50%; Dollar: 5.5%

Also determine the interest rate after three months that would make the company indifferent between three-month borrowing and six-month borrowing in the case of:

(i) Rupee borrowing

(ii) Dollar borrowing

Note: For calculation purposes, assume the units of dollar and rupee as 100 each.

Solution:

Part (i): Determine whether the company should borrow in dollars or rupees.

Option 1: Borrow in dollars

Assume the company borrows $100.

• Amount borrowed = $100.00

• Interest for six months at 5.5% = $2.75

• Amount repayable after six months = $102.75

• Applicable six-month forward rate = 86.40

Amount of cash outflow in Indian rupees:

= $102.75 × 86.40

= Rs. 8,877.60

Option 2: Borrow in Indian rupees

Equivalent rupee amount:

= Rs. 86.10 × 100

= Rs. 8,610.00

Interest at 11.50% for six months:

= Rs. 495.08

Total amount repayable:

= Rs. 8,610.00 + Rs. 495.08

= Rs. 9,105.08

Since the cash outflow is higher in the case of rupee borrowing, the company should borrow in US dollars.

Part (ii): Calculate the interest rate that makes the company indifferent between three-month and six-month borrowing.

(a) Rupee borrowing

Let 'i' be the interest rate of rupee borrowing that makes the company indifferent between three-month and six-month borrowing.

(1 + 0.03)(1 + ir) = (1 + 0.0575)

ir = 2.67%

Annualised interest rate = 10.68%

Answer: The required interest rate is 2.67% for three months or 10.68% on an annualised basis.

(b) Dollar borrowing

Let 'id' be the interest rate of dollar borrowing after three months that makes the company indifferent between three-month and six-month borrowing.

(1 + 0.015)(1 + id) = (1 + 0.0275)

id = 1.232%

Annualised interest rate = 4.93%

Answer: The required interest rate is 1.232% for three months or 4.93% on an annualised basis.

2. Bharat Infrastructure Ltd. (BIL), a premier Indian engineering firm, has been invited to establish and operate a high-speed data centre infrastructure in the Republic of Valoria. The initial investment required for the project is 4,000 million Valors (VL).

Under the agreement, BIL will sell the project back to the Valorian government after four years for a guaranteed sale price of 8,000 million VL. During the four-year operational period, BIL will provide technical maintenance and security protocols at an annual fee of 80 million VL, payable at the end of each year.

To hedge the foreign exchange risk associated with the initial capital investment, BIL's investment bankers have proposed a currency swap arrangement with the following terms:

• BIL will swap the principal amount of 4,000 million VL for Indian rupees immediately (Year 0) at today's spot rate.

• The swap will be reversed at Year 4, with both parties re-exchanging the same principal amounts at the same spot rate locked in at inception.

• The bank will charge an annual facilitation fee of 0.30% (calculated on the Rs.  principal amount), payable at the end of each year.

The currency swap covers only the initial investment and terminal principal. BIL's policy is to hedge all other foreign currency cash flows using forward contracts at the respective forward rates prevailing in the market today.

Financial Data:

The current market data and exchange rates (VL/Rs. ) are as follows:

Exchange rates:

• Spot rate: 50.00

• 1-year forward rate: 53.00

• 2-year forward rate: 56.18

• 3-year forward rate: 59.55

• 4-year forward rate: 63.12

PV factors at 14%:

• Year 0: 1.000

• Year 1: 0.877

• Year 2: 0.769

• Year 3: 0.675

• Year 4: 0.592

Cumulative PVFA for four years at 14% = 2.913.

Assume a risk-adjusted discount rate of 14% per annum. Ignore taxation.

Evaluate the project's financial viability using the Net Present Value (NPV) method, with all cash flows expressed in Indian rupees (Rs.  million).

Solution:

Working Note 1: Swap Calculations

• Initial investment (Year 0):
  4,000 million VL / 50.00 = Rs. 80.00 million

• Annual bank charges:
  Rs. 80.00 million × 0.30% = Rs. 0.24 million per annum for Years 1 to 4.

• Swap terminal receipt (Year 4):
  Since the swap is at the spot rate, BIL receives back Rs. 80 million in exchange for 4,000 million VL.

Working Note 2: Project Cash Flows (Rs.  in Million)

The annual technical fees and the excess buy-back amount (the portion not covered by the swap) are converted using the respective forward rates.

• Year 1 fee: 80 million VL / 53.00 = Rs. 1.51 million

• Year 2 fee: 80 million VL / 56.18 = Rs. 1.42 million

• Year 3 fee: 80 million VL / 59.55 = Rs. 1.34 million

• Year 4 fee: 80 million VL / 63.12 = Rs. 1.27 million

Year 4 Excess Sale Receipt:

Total sale price = 8,000 million VL

Less: Amount covered by swap reversal = 4,000 million VL

Excess amount to be converted at the forward rate = 4,000 million VL

Four-year forward rate = 63.12 VL/Rs. 

Rupee equivalent:

= 4,000 / 63.12

= Rs. 63.37 million

Step 3: Discounted Cash Flow (DCF) Analysis of the Project

All amounts are in Rs.  million.

• Year 0: Initial Investment (Swap)

• Cash flow = (Rs. 80)

• PV factor = 1.00

• Present value = (Rs. 80.0000)

• Year 1: Technical Fee

• Cash flow = Rs. 1.5094

• PV factor = 0.877

• Present value = Rs. 1.3237

• Year 2: Technical Fee

• Cash flow = Rs. 1.4240

• PV factor = 0.769

• Present value = Rs. 1.0951

• Year 3: Technical Fee

• Cash flow = Rs. 1.3434

• PV factor = 0.675

• Present value = Rs. 0.9068

• Year 4: Technical Fee

• Cash flow = Rs. 1.2674

• PV factor = 0.592

• Present value = Rs. 0.7503

• Year 4: Swap Principal Receipt

• Cash flow = Rs. 80

• PV factor = 0.592

• Present value = Rs. 47.3600

Present Value of Facilitation Fee:

= (0.30% × 4000 / 63.12 × 2.913)

= Rs. 0.6991 million

Present Value of Excess Receipt:

= (4000 / 63.12 × 0.592)

= Rs. 37.5158 million

Net Present Value:

= Rs. 8.2526 million

Alternatively, if cash flows are discounted to only two decimal places:

NPV = Rs. 8.25 million

Note: 2.913 is the cumulative PVFA for four years at 14%.

Conclusion: Since the NPV is positive at Rs. 8.2526 million or Rs. 8.25 million, BIL should accept the invitation to operate the project in Valoria.

3. India Imports Co. purchased machinery worth USD 100,000 from a firm in New York, USA. The rupee has been depreciating against the US dollar. The supplier offers credit terms of 2/10, net 90. The spot exchange rate is Rs. 55 per USD, and the 90-day forward rate is Rs. 56 per USD.

Calculate:

1. The rupee cost of paying the account within 10 days.

2. The rupee cost of using a forward contract to settle the account at the end of the normal 90-day credit period.

3. The difference between the two costs, separating the time value of money arising from the prepayment discount and the protection against currency depreciation.

Solution:

Step 1: Calculate the rupee cost of payment within 10 days.

A 2% cash discount reduces the dollar payment from USD 100,000 to USD 98,000.

Discounted payment:

= USD 100,000 × (1 − 0.02)

= USD 98,000

Rupee cost:

= USD 98,000 × Rs. 55

= Rs. 53,90,000

Step 2: Calculate the rupee cost using a 90-day forward contract.

If the company does not take the discount, it must settle the full USD 100,000 after 90 days. The forward contract fixes the exchange rate at Rs. 56 per USD.

Rupee cost:

= USD 100,000 × Rs. 56

= Rs. 56,00,000

Step 3: Calculate the difference in rupee cost.

Difference in rupee cost:

= Rs. 56,00,000 − Rs. 53,90,000

= Rs. 2,10,000

Step 4: Calculate the components of the difference.

(a) Time Value / Discount Component

= (USD 100,000 − USD 98,000) × Rs. 56

= Rs. 1,12,000

(b) Currency-Depreciation Protection

= USD 98,000 × (Rs. 56 − Rs. 55)

= Rs. 98,000

Total Difference:

= Rs. 1,12,000 + Rs. 98,000

= Rs. 2,10,000

Final Answer:

• Early-payment cost = Rs. 53,90,000

• Forward-payment cost = Rs. 56,00,000

• Total difference = Rs. 2,10,000

• Time value / discount component = Rs. 1,12,000

• Currency-depreciation protection = Rs. 98,000

CA Final AFM Questions PDF for January 2027 Exam

Use the CA Final AFM questions PDF to practise chapter-wise problems and revise important question types before the January 2027 examination.

Attempt the questions before checking their solutions. Pay attention to the working notes, formulas, assumptions and final recommendations, especially in questions that involve multiple calculations.

How to Prepare for CA Final AFM for the January 2027 Exam?

A good AFM revision strategy plan should give you enough time to revisit concepts, solve practical questions and improve your speed. You can follow these steps:

1. Revise the concepts and formulas: Begin with the important concepts and formulas in each chapter. Make sure you understand when and how to apply them instead of memorising them without context.

2. Practise chapter-wise questions: Solve questions from Financial Policy and Corporate Strategy, Risk Management, Capital Budgeting, Security Valuation, Portfolio Management, Derivatives and other AFM chapters. This will help you identify the question types covered in each topic.

3. Solve previous-year questions: Practise questions from past examination papers to understand how concepts are tested and how much working is expected in your answers.

4. Attempt RTPs and MTPs: Include Revision Test Papers and Mock Test Papers in your preparation. They provide additional practice with practical questions, MCQs and case scenarios.

5. Review mistakes: After checking a solution, identify whether the error occurred because of a formula, calculation, interpretation or presentation. Rework the question to avoid repeating the same mistake.

6. Take timed mock tests: Practise completing questions within the available time. This will help you manage lengthy calculations and leave enough time to review your answers.

7. Revise difficult questions again: Keep a record of questions that take longer to solve or require repeated attempts. Revisit them during your final revision instead of spending all your time on questions you can already solve confidently.

Preparing for the CA Final January 2027 AFM exam requires regular practice with numerical problems, case scenarios and financial decision-making questions. Work through CA Final AFM Important Questions, revise the underlying concepts and check your calculations carefully. PW's CA Final classes, batches and learning resources can also support your preparation as you revise important topics and practise questions before the examination.