EOTM 6 - Quiz Question Flashcards
The items listed below are some of the major objectives of treasury management.
What is another of these objectives?
• Maintain liquidity.
• Maintain access to short-, medium-and long-term financing.
• Manage investments.
• Manage information and technology.
• Collaborate internally and manage
external parties
• Manage risk.
A) Prioritize investments for profit.
B) Perform financial planning and
analysis.
C) Optimize cash resources
D) Set organizational strategy.
Answer: C. Optimize cash resources.
For publicly traded companies on a US stock exchange, who does SOX make personally responsible for financial statement accuracy?
a) Treasurer
b) Chief financial officer (CFO)
c) Controller
d) All of the above
Answer: B. Chief financial officer (CFO)
The items listed below are some of the primary treasurer responsibilities. What is another of these responsibilities?
• Treasury strategy, policies
• Daily liquidity and cash
• External financing
• Short- and long-term investing
• Relationships
• Payments
• Reporting/compliance oversight
a) Credit and A/R
b) Financial risk management
c) Tax management and reporting
d) Investor relations
Answer: B. Financial risk management
When and why is treasury set up as a cost center versus a profit center?
a) Cost centers are less common.
b) In a profit center, treasury is seen as a support function.
c) Cost centers are common in global
finance, trade, or risk management.
d) Profit center income is from trading
and hedging/speculative activities
Answer: B. In a profit center, treasury is seen as a support function.
Which approach to monitoring and managing banking system safety and
soundness has a moral hazard?
a) Minimum capital levels for banks in country (ratio of capital to at-risk assets and tiered capital)
b) Impairment of capital rules
c) Deposit insurance
d) Regular monitoring and surveillance
Answer: C. Deposit insurance
Depositors may not investigate a bank’s
creditworthiness; banks may undertake more risk. (p. 2-5)
The items listed below are some of the primary global financial market regulators/standard setters.
What is another of these regulators/standard setters?
• Financial Stability Board
• Bank for International Settlements
• European Payments Council and SEPA
• European Securities and Markets Authority
• International Association of Deposit
Insurers
• International Organization of Securities
Commissions
• Financial Action Task Force
• International Association of Insurance
Supervisors
• International Swaps and Derivatives Association
a) International Organization for Standardization
b) Central banks
c) United Nations
Answer: B. Central banks
Which is a partial responsibility of the European Securities and Markets Authority and is analogous to Dodd-Frank?
a) EBA and EIOPA
b) Single rule book
c) European Systemic Risk Board
d) European Market Infrastructure
Regulation
Answer: D. European Market Infrastructure Regulation
For OTC derivatives
Which agencies are required to regulate OTC derivatives to reduce excessive risk taking?
a) FDIC and DOJ
b) FSOC and FINRA
c) CFPB and Secret Service
d) CFTC and SEC
Answer: D. CFTC and SEC
Which is true?
a) FinCEN enforces counter-money laundering legislation and provides intelligence for investigations and prevention strategies.
b) The FDIC provides deposit insurance and acts as a trustee for failed banks but does not supervise depository institutions.
c) Dodd-Frank phased out the “dual nature” of the US banking system.
Answer: A.
FinCEN enforces counter-money laundering legislation and
provides intelligence for investigations and prevention strategies.
The Red Flags Rule applies to FIs and creditors with what types of consumer accounts?
a) Accounts that hold funds for OBSA.
b) Accounts that permit multiple payments or transactions.
c) Foreign bank accounts held by US taxpayers.
d) Accounts for corporate signers with a
consolidated FBAR filed by their organization.
Answer: B. Accounts that permit multiple payments or transactions
In the US, which state is the recipient of unclaimed or abandoned rebates or
gift cards?
a) State where transaction occurred.
b) State that is residence of organization holding the property.
c) State that is residence of customer
being escheated.
d) State where the unclaimed asset is
listed on the books.
Answer: C. State that is residence of customer being escheated
Complete the following Chapter 7 bankruptcy priority of claims.
- Specific property pledged (e.g., lien)
- Trustee’s costs
- Pre-trustee involuntary liquidation expenses
- Wages earned three months prior to filing
- Unpaid benefit contributions owed six months prior
- Unsecured claims for customer deposits
- Taxes due
- Unfunded pension plan liabilities up to 30% of book value of common/preferred equity
- General unsecured creditors
- Preferred stockholders (paid up to par value)
- Common stockholders (receive remaining funds)
A commercial bank is an FI that
a) accepts deposits and makes commercial loans.
b) must limit its services to depository accounts and credit services.
c) specializes in the handling and
investment of funds.
d) does not need a federal or state charter in the US.
Answer: A. accepts deposits and makes commercial loans.
Which is true of credit unions?
a) Membership is restricted to individuals with a common affiliation.
b) Credit unions operate in over 100 countries.
c) In the US, the National Credit Union Administration charters and supervises all credit unions.
d) A disadvantage to commercial banks is that deposits are not insured in the US.
Answer: B. Credit unions operate in over 100 countries.
Which of the following is true for full service banks that offer both underwriting/distribution and investment advisory or management functions?
a) “Bringing someone over the wall” is a clear violation of SEC regulations.
b) Distribution and underwriting is the buy side.
c) Buy- and sell-side transactions should
be separated by a “wall” to prevent
each party from getting and acting on MNPI.
d) Possession of MNPI constitutes a crime.
Answer: C.
Buy- and sell-side transactions should be separated by a “wall” to prevent each party from getting and acting on MNPI.
What type of brokerage would be appropriate for a firm that wants the
broker to manage its investment portfolios and generally needs to
transact in large blocks of securities?
a) Full-service retail broker
b) Full-service institutional broker
c) Discount retail broker
d) Discount institutional broker
Answer: B. Full-service institutional broker
Which type of check clearing requires sorting transmitting checks as cash letters to the paying bank via a clearinghouse, correspondent bank, direct send, or the central bank (e.g., the Fed)?
a) On-us
b) On-we
c) Transit
d) Foreign
Answer: C. Transit
With a foreign check in a foreign currency, when does the bank of first deposit typically credit the payee’s account?
a) At the time of image/actual presentment.
b) After it receives and converts the proceeds of the check to its base currency.
c) At the same time that it debits the
payor’s account.
d) Once the review period has expired.
Answer: B. After it receives and converts the proceeds
Which of the following is true of gross versus net settlement systems?
a) Net settlement batch processing systems send the entire amount of
each transaction at day’s end.
b) Gross settlement has a separate value transfer between payor and payee and is usually accompanied by real-time settlement.
c) Electronic credit transactions are not considered final immediately after net settlement.
d) Electronic debits are never reversible.
Answer: B.
Gross settlement has a separate value transfer between payor and payee and is usually accompanied by real-time settlement. (RTGS)
What is the Fed doing when it processes a fixed-to-variable FedGlobal ACH account-to-account transfer?
a) Acting as a near real-time ACH and
performing FX conversion.
b) Acting as a near real-time ACH and
transferring receiving in US dollars.
c) Acting as a “gateway” bank and
transferring and receiving in US dollars.
d) Acting as a “gateway” bank and
performing FX conversion.
Answer: D. Acting as a “gateway” bank and performing FX conversion.
What must merchants do as part of the PCI DSS?
a) Enumerate interchange fees, assessments, and processor fees.
b) Avoid bundled pricing and use “interchange-plus” pricing.
c) Audit systems and applications.
d) Account for merchant card fees for
returns, chargebacks, and disputes.
Answer: C. Audit systems and applications.
Which type of investment risk includes price risk and reinvestment risk?
a) Credit or default risk
b) Asset liquidity risk
c) Interest rate risk
d) FX risk
Answer: C. Interest rate risk
Which is a LIBOR- or Euribor-based investment with 1+-year typical
maturities but a wider bid-offer spread, so regular trading can erode its yield advantage quickly?
a) Government paper
b) Floating rate notes (FRNs)
c) Retail CDs
d) Repurchase agreements (repos)
Answer: B. Floating rate notes (FRNs)
Per SEC MMF reforms as of October 2016, if a fund’s weekly liquid assets fall
below a threshold, what will occur?
a) Redemption fees will be assessed for non-government institutional or retail funds.
b) Redemptions will be suspended for 10 business days.
c) NAV becomes floating.
d) They become short-duration mutual funds.
Answer: A.
Redemption fees will be assessed for nongovernment institutional or retail funds.
Identify the following market characteristics as primary, secondary, or private.
• Issues may be exempt from registration, e.g., with SEC in US or FCA in UK.
• Firm gets funds on issue date if underwritten; syndicate markets issue to investing public.
• Trades occur on stock exchanges or OTC market.
• Market price of existing shares guides price for new shares.
Answer: (pp. 2-162–2-165):
Private. 1. Issues may be exempt from registration, e.g., with SEC in US or FCA in UK.
Primary 2. Firm gets funds on issue date if underwritten; syndicate
markets issue to investing public.
Secondary 3. Trades occur on stock exchanges or OTC market.
Primary 4. Market price of existing shares guides price for new shares
Which describes a bond issue, lists collateral, makes representations
and warranties, specifies covenants and redemption terms, and sets interest payments or call provisions?
a) Guarantees
b) Indentures
c) Put provisions
d) Covenants
Answer: B. Indentures
(p. 2-167)
A bond denominated in US dollars and issued in India by a UK company is an example of a:
a) Green bond.
b) Eurobond.
c) tender option bond.
d) multicurrency bond.
Answer: B. Eurobond
(p. 2-169)
The items listed below are typically included in covenants. Which is another of these items?
• Assets involved
• Use of second mortgages
• Sinking fund, reporting, ratio requirements
• Prepayment terms
• Restrictions on dividend policy
a) Affirmation of valid, legal existence
b) Right to issue additional debt
c) Convertibility
d) Board resolution
Answer: B. Right to issue additional debt
Which is characteristic of a sinking fund debt repayment plan?
a) Always requires calling a portion of bond each month
b) Can make payments into a trust each year to retire the issue at maturity
c) Increases the risk of the bonds
d) Increases the required interest rate
Answer: B.
Can make payments into a trust each year to retire the issue at maturity
How does preferred stock compare to common stock or debt?
a) It is considered debt but precedes common stock in stockholders’ rights and dividend payments.
b) Cash flows are more like equity than debt due to fixed dividend payments.
c) A company doesn’t risk bankruptcy by
missing a preferred stock dividend.
d) Preferred stock dividends are
tax-deductible.
Answer: C.
A company doesn’t risk bankruptcy by missing a preferred stock dividend.
Which is a benefit of using depositary receipts in countries with few
financial markets?
a) Increases global trade, including transaction volumes on both local and foreign markets
b) Offers opportunity for companies in small countries to raise local capital
c) Reduces inefficiencies in emerging markets by easing local investment
d) Reduces local company exposure globally
Answer: A.
Increases global trade, including transaction volumes on both local and foreign markets
The items listed below increase the mutual benefit and profitability of company-bank relationships. What else can do this?
• Open, frequent communications
• Regular, timely feedback
• Fair, efficient, and effective financial
services/products
• Contract compliance
• Service level agreements
a) Expecting bank to do all relationship management
b) Complete, candid, and timely disclosure by bank only
c) Documenting both parties’ expectations in agreements and legal contracts
d) Changing vendors frequently
Answer: C. Documenting both parties’ expectations in agreements and
legal contracts
Which describes a scorecard?
a) Measures and manages a bank’s performance in qualitative terms only
b) Measures and manages a bank’s performance in quantitative terms only
c) Primary purpose is to generate a true
two-way dialog presenting new ideas
d) Provides feedback on perceived value and quality versus cost of services
Answer: D. Provides feedback on perceived value and quality versus cost of services
When the product requested in an RFP will clearly be used only by treasury, what will involving operations, tax, legal, accounting, IS, compliance/audit, and procurement likely do?
a) Strengthen the process.
b) Delay the RFP until it risks project failure.
c) Add needless expense.
d) Create scope creep.
Answer: A. Strengthen the process.
In a back-valued withdrawal, the date of the customer account debit is _______
the actual date the item is deducted from the ledger balance.
a) earlier than
b) later than
c) the same as
d) unrelated to
Answer: A. earlier than
Bank sets forward value date when value is credited and back value date when value is debited
The items listed below are typically provided in an account analysis statement. What is another of these items?
• Services provided
• Balances maintained
• Volumes processed
• Charges assessed
a) Standardized terminology
b) Imputed interest for non-US
branches
c) Value dating
d) Earnings credit allowances
Answer: D. Earnings credit allowances
An FSP is a lender and a bond trustee. Which is a risk if the borrower becomes distressed?
a) Conflict of interest, if FSP protects own credit to detriment of borrower and bondholders
b) Financial risk, if borrower default lowers FSP’s UBPR score
c) Notional barrier or “wall” risk, if information flows are prevented
d) “Commissions” or “fees” risk, if they could really be bribes
Answer: A. Conflict of interest, if FSP protects own credit to detriment of borrower and bondholders
Which is a possible reason why the vast majority of participants in US capital markets do not support adopting IFRS over US GAAP?
a) IFRS may not spell out the “correct” solution to specific accounting
transactions, making it impossible to get reasonable guidance.
b) IFRS is a rules-based system.
c) IFRS might result in different interpretations of specific situations.
d) A single set of financial statements can be made that conform to both IFRS and US GAAP.
Answer: C. IFRS might result in different interpretations of specific situation
How are liabilities and debt different?
a) Debt refers to an amount that is owed, regardless of the form.
b) Accounts payable is a liability but not a debt.
c) Liability refers only to obligations that require interest payments and is considered a subset of debts.
d) Notes payable is a liability but not a debt.
Answer: B. Accounts payable is a liability but not a debt.
(a and c have labels reversed;
notes payable is both a liability and a debt.
Net income adjusted for the following gains and losses not reported on
the income statement is called what?
• Unrealized gains and losses on investments
• Minimum pension liability adjustments
• Foreign currency translation adjustments
• Changes in market values of
instruments qualifying as hedges
a) Operating income
b) Other income and expenses
c) Comprehensive income
d) Retained earnings
Answer: C. Comprehensive income
Identify whether changes in each of the balance sheet accounts is a source or use
of funds on the statement of cash flows.
Answers:
Uses of funds. Increase in an asset
Sources of funds. Decrease in an asset
Sources of funds. Increase in a liability
Uses of funds. Decrease in a liabilit
How are gains and losses arising from changes in a derivative’s fair value
accounted for in ASC Topics 815, 820, and 825?
a) If not hedge instruments—report in current income.
b) Fair value hedges—hedge specific asset or liability on balance sheet—recognize as income but omit hedged item offsetting gains/losses.
c) Cash flow hedges are reported in current income.
d) FX transaction hedges are reported in current income.
Answer: A. If not hedge instruments—report in current income.
(b recognizes offsetting gains and losses;
c and d are reported in comprehensive income)
Which should be considered relevant cash flows for a proposed capital
investment? (Choose two.)
a) Cash flow that was incurred in the past
Sunk cost
b) Deductible expenses and taxes that affect future cash flows
c) Cash flows that will be earned with or without the capital investment
d) Depreciation that can be claimed with one alternative but not the other
Answer: B and D
B. Deductible expenses and taxes that affect future cash flows
&
D. Depreciation that can be claimed with one alternative but not the other
How do treasury’s plan assessments affect projected cash flow streams in
budgeting?
a) In calculating adequate funds and liquidity
b) In determining impact on debt covenants and credit ratings
c) In managing financing of long-term assets through debt and equity issues
d) Treasury is not directly or indirectly
responsible for budgeting.
Answer: B. In determining impact on debt
What is the difference between operating leverage and financial leverage?
a) Operating leverage is the result of total costs in operations.
b) Financial leverage magnifies the impact of changes in sales on EBIT.
c) Financial leverage results from fixed financing costs (interest).
d) Operating leverage magnifies the results of changes in EBIT on net income.
Answer: C. Financial leverage results from fixed financing costs (interest).
Which four ratios help determine the extent to which a company was
leveraged?
a) Total liabilities to total assets
b) Times interest earned
c) Long-term debt to capital
d) Debt to equity
e) Debt to tangible net worth
f) Fixed charge coverage
Answer: A, C, D, E
Degree of indebtedness ratios: relative indebtedness
Why do service industry ratios differ from manufacturing industry ratios?
a) Balance sheets have higher current assets, especially A/R.
b) Service firms have higher debt.
c) Supply costs are always low.
d) Asset turnover is more important than
profit margin.
Answer: A. Balance sheets have higher current assets, especially A/R.
How do common-size statements enable direct financial comparisons of different-
size firms?
a) Expenses as a percentage of profits reveals who has the best expense controls.
b) Asset categories as a percentage of revenues can be compared.
c) Liability categories as a percentage of total assets can be compared.
d) Cash flow elements as a percentage of net income can be compared.
Answer: C. Liability categories as a percentage of total assets can be compared.
In what scenario could a negative EVA be fine?
a) New increases in the capital base are unlikely to generate additional earnings.
b) EVA is negative but only by a small amount on a regular basis over a long period of time.
c) Additional capital is invested in assets that earn a rate of return less than the cost of capital.
d) Rapid expansion of capital base is required to fund growth.
Answer: D. Rapid expansion of capital base is required to fund growth.
Which procure-to-pay step initiates the inventory period (shown below), and which order-to-cash step ends it?
a) Send and receive PO.
b) Ship and receive goods and invoice.
c) Send and receive payment.
d) Reconcile and account.
Raw Materials > Work in Progress > Finished Goods
Answer: C. Send and receive payment.
The delay between when a payment is initiated and __________ is __________.
a) seller’s/payee’s account is credited; disbursement float
b) seller’s/payee’s account is debited; collection float
c) buyer’s/payor’s account is credited;
collection float
d) buyer’s/payor’s account is debited;
disbursement float
Answer: D. buyer’s/payor’s account is debited; disbursement float
What is a company’s CCC and cash turnover given the following?
Days’ inventory = 45
Days’ receivables = 35
Days’ payables = 30
a) 50 days; 6.6 times
b) 50 days; 7.3 times
c) 55 days; 6.6 times
d) 55 days; 7.3 times
Answer: B. 50 days; 7.3 times
CCC = Days’ Inventory + Days Receivables − Days’ Payables
CCC = 45 + 35 − 30 = 50 days
Cash Turnover = 365/CCC = 365/50 = 7.3 times
The items listed below are some of the reasons to use caution if reducing A/R
and inventory conversion or extending A/P deferral periods. What is another of
these reasons?
• Production stoppages from poor materials or parts
• A/P stretched past due
• Lost trade discounts
• Higher vendor charges
from small orders or slow payment
a) Overly loose credit and collection
standards
b) Won’t sell to customers with good
credit who are a bit slow in paying
c) Excessive reliance on short-term bank credit
d) Insufficient reliance on A/P
Answer: B. Won’t sell to customers with good credit who are a bit slow in paying
Which two accounts vary spontaneously as sales levels change, and why do they
change?
a) Current assets (credit sales) and current liabilities (fewer assets or more liabilities)
b) Inventories (JIT) and long-term liabilities (CapEx)
c) Common stock (dividends) and long-term liabilities (CapEx)
d) Current assets (credit sales) and long-term assets (capacity expansion)
Answer: A. Current assets (credit sales) and current liabilities (fewer assets or more liabilities)
What is characteristic of a restrictive current asset investment strategy?
a) Company maintains high levels of current assets relative to sales.
b) Raw materials investment is significant.
c) The just-in-time approach is commonly used.
d) A/R balances are kept high
Answer: C. The just-in-time approach is commonly used.
What is characteristic of a relaxed current asset investment strategy?
a) Company has low levels of cash.
b) Company has low levels of A/R.
c) Company has less risk due to higher cash holdings.
d) Company has higher investment returns than those with a restrictive strategy.
Answer: C. Company has less risk due to higher cash holdings.
What is a ramification of overly strict credit?
a) Company may decline trade credit to customers who are an acceptable credit risk.
b) Company has improved sales opportunities.
c) Company may grant trade credit to customers who are an unacceptable credit risk.
d) May increase risk of late payments
and bad debt expenses.
Answer: A. Company may decline trade credit to customers who are an acceptable credit risk.
The Five Cs of Credit
In addition to verifying incoming payments and authorizing payments,
vouchering has a three-way match of an invoice against what?
a) Inventory level and payment receipt
b) Inventory level and receiving or shipping information
c) Approved PO and payment receipt
d) Approved PO and receiving or
shipping information
Answer: D. Approved PO and receiving or
shipping information
All are multicurrency account stipulations EXCEPT
a) the base currency in which the account is denominated.
b) the currencies accepted.
c) the spread over spot rate to use in exchanging each currency back to the base currency.
d) the value date to apply to debits and credits for each transaction type and currency.
Answer: B. currencies accepted
Original answer in book was wrong.
“The currencies not accepted. (All others are accepted.)”
Which is sometimes used if a subsidiary’s currency is expected to appreciate relative to the parent company’s currency?
a) Leading
b) Lagging
c) Netting
d) Re-invoicing
Answer: B. Lagging
What is a benefit of using in-house banks in international treasury management?
a) Manages international treasury management investments but not debts
b) Replaces netting, pooling, and re-invoicing
c) Aggregates many small transactions into fewer larger ones
d) Decentralizes FX exposures
Answer: C. Aggregates many small transactions into fewer larger ones
Given a cash conversion cycle of 81.04 days, how many CCCs are there in a year (cash turnover ratio)?
Simple equation:
Days in the year / Cash Conversion Cycle
365 / 81.04 = 4.504
Sure! Let’s break it down step by step using the details provided:
Step-by-Step Calculation
- Calculate the discount amount:
Discount} = Face Value} x Discount Rate
Discount} = $25,000,000 x 0.0035 = $87,500
- Calculate the net proceeds:
Net Proceeds} = Face Value - Discount
Net Proceeds = $25,000,000 - $87,500 = $24,912,500
- Convert dealer fee and backup L/C fee to match the period:
Annual Dealer Fee = 0.001 x $25,000,000 = $25,000
Dealer Fee for 27 days = 27\360 x $25,000 = $1,875
Annual Backup L/C Fee = 0.002 x $25,000,000 = $50,000
Backup L/C Fee for 27 days = 27\360 x $50,000 = $3,750
- Total fees for the period:
Total Fees = Dealer Fee for 27 days + Backup L/C Fee for 27 days
Total Fees = $1,875 + $3,750 = $5,625
- Net proceeds after all fees:
Net Proceeds After Fees = Net Proceed - Total Fees
Net Proceeds After Fees = $24,912,500 - $5,625 = $24,906,875
- Calculate the yield:
Yield = (Face Value - Net Proceeds After Fees / Net Proceeds After Fees) x (360 /27)
Yield} = (25,000,000 - 24,906,875 /24,906,875) x (360 / 27)
Yield} = 93,125 / 24,906,875) x 13.3333 approx 0.05 or 5%
So, the approximate annual interest rate the company pays for this issue of commercial paper is about 5.0%.
Answer:
Cash Turnover = 365 Days / Cash Conversion Cycle
365/81.04 = 4.5 time
Describe two situations when a buyer should forgo an offered cash discount.
Answer:
1). When buyer has to borrow funds at interest rate that exceeds effective cost of discount
2). When buyer has enough cash to pay A/P by discount date but can earn a rate that exceeds effective cost of discount.
What can a treasury professional discover by monitoring individual accounts receivable?
a) Errors or delays in payments by credit card that are slowing collections
b) Customers that delay payment intentionally until follow-up is initiated
c) Change in financial condition that may result in slower payments and require extension of longer credit terms
d) Increase in receivables that affects liquidity
Answer: B. Customers that delay payment intentionally until follow-up is initiated
Which provides same-day or prior-day information to help with fraud control?
a) Balance reporting services
b) Interface with A/P
c) Account reconciliation program
d) Check images
Answer: A. Balance reporting services
Which type of organization frequently invokes the “holder in due course” to get reimbursement for a fraudulent or altered US payroll check?
a) Disbursement bank with positive pay
b) Disbursement bank without positive pay
c) Check-cashing store
d) Stored value card processor
Answer: C. Check-cashing store
A retailer gets cash and checks from local banks at each POS. Which offers cash/coin pickup and delivery and immediate provisional credit?
a) Depository institution near each field location
b) Smart safes
c) Remote deposit capture (RDC)
d) Armored carriers
Answer: Smart safes
By implementing smart safes as part of your cash management process, you ensure not only accurate counting, but safety and security for your staff and the cash being handled, transported, and deposited. Ultimately, smart safes are the quickest and easiest way for your business to maximize operational efficiency with real-time cash visibility, reporting, and insights.
Internal processing has $99k annual float, 9% opportunity cost, and $3k in variable internal processing. A lockbox has $24m dollar-days in 30 days, $10k in fixed costs, and $6k in variable costs.
Which method has the net benefit?
a) Internal processing: $14k
b) Internal processing: $685k
c) Lockbox: $14k
d) Lockbox: $685k
Answer: C. Lockbox: $14k
• $24m/30 = 0.8 ($800k) move decimal point to the right for dollars.
• $800k x 0.09 = $72k
• $99k – $72k = $27k
• $27k – $10k – 6k + $3k = $14k lockbox
What is a float-neutral discount for immediate electronic payment if a check gives 2 total days (TD) of float and the annual opportunity cost (r) is 6%?
a) 0.033%
b) 0.038%
c) 0.041%
d) 10%
To calculate the float-neutral discount for immediate electronic payment, we need to determine the value of the float provided by the check payment and then convert that into a discount for immediate electronic payment.
Step-by-Step Calculation
- Calculate the daily interest rate:
Daily Interest Rate = Annual Opportunity Cost (r) / 365
Daily Interest Rate = 0.06 \ 365 = 0.0001644
- Calculate the value of the float:
Value of Float = Daily Interest Rate x Total Days of Float
Value of Float = 0.0001644 x 2 = 0.0003288 or 0.03288%
- Determine the float-neutral discount:
Float-Neutral Discount = Value of Float
Float-Neutral Discount = 0.03288\%
So, the float-neutral discount for immediate electronic payment, given 2 total days of float and an annual opportunity cost of 6%, is approximately 0.03288%.
Answer: A. 0.000329
Round up to (0.033%)
What is a successor to the electronic lockbox that consolidates all remittances into a common stream of data in a common format?
a) EFT with remittance information
b) EBPP and EIPP
c) Consolidated remittance processing
(CRP)
d) Imaging technology
Answer: C. Consolidated remittance processing (CRP)
A _____ draft requires the ______ bank to receive full and final payment before releasing documents.
a) sight; collecting
b) sight; remitting
c) time; collecting
d) time; remitting
Answer: A. sight; collecting
Which is true of a bank overlay structure?
a) It uses sweeping, not pooling.
b) It is used when a primary bank has branches in several countries but
not full domestic banking.
c) It uses a primary bank for domestic transactions and to sweep surplus funds to local banks.
d) A local bank notionally pools balances on overlay accounts for a multi-country
solution.
Answer: B. It is used when a primary bank has branches in several countries but not full domestic banking.
Which securities safekeeping and custody services method is generally less costly but more risky due to higher risk of fraud?
a) Avoiding use of a street name
b) Having the commercial bank corporate trust department provide custodial services
c) Keeping securities at the brokerage firm where purchased
d) Using one custodian per investment manager
Answer: C. Keeping securities at the brokerage firm where purchased
Which is true of T-bills, CP, and BAs?
a) They pay unregulated interest based on current market value.
b) They pay no interest but are issued at less than par value and pay par value at maturity.
c) They pay a semi-annual coupon.
d) They have no dollar discount.
Answer: B. They pay no interest but are issued at less than par value and pay par value at maturity.
All are discounted instruments
Fill in the blanks to show assumptions made when risk-free rates and premiums are calculated on US Treasuries, corporate issues, and municipal issues.
a) US Treasuries are perceived to be “risk free” with no “default risk.”
b) US Treasuries are highly “liquid” and have no “liquidity risk.”
c) Both corporate and municipal bonds
default risk liquidity risk have “default” and “liquidity risk”.
d) “Maturity risk” increases with the
maturity issue’s time to “maturity”
Answer:
A. “Risk free, default risk”
B. “Liquid, liquidity risk”
C. “Default risk, liquidity risk”
D. “Maturity risk, maturity”
Which reduces the risk of dramatic rate swings when borrowing at prevailing interest rates?
a) Reserve requirements on credit facilities of less than 365 days
b) Negotiating multi-year credit line commitments (revolving credit agreements)
c) Interest rate caps, collars, swaps, floors
d) Averaging interest rate quotes of at
least 8 banks
Answer: C. Interest rate caps, collars, swaps, floors
(Answer b relates to risk of tightening credit standards).
Which is true of credit rating agencies?
a) Issuer credit ratings consider issuer attributes and specific terms of the issue.
b) Unsolicited ratings use confidential, nonpublic information.
c) Firms can solicit ratings to ensure an appropriate rating prior to a future debt offering.
d) Providing nonpublic data to raters is a risk because they may release it to justify the rating.
Answer: C. Firms can solicit ratings to ensure an appropriate rating prior to a future debt offering.
Answer a refers to issue-specific ratings
Identify the following forecasting horizons.
- Used to establish and manage target balances for bank compensation
- Used to determine the company’s need for short-term credit or availability of funds for short-term investing
3.Used as a benchmark to compare actual to projected cash flows on the cash budget
4.Used by financial institutions and rating agencies for credit analysis
A. Short-term
B. Medium-term
C. Long-term
Answers:
- A. Short-term
- B. Medium-term
- B. Medium-term
- C. Long-term
Which is a step in arriving at the projected closing cash position?
a) Start with the next period’s closing available bank balance.
b) Deduct the expected settlements in collection and concentration accounts.
c) Deduct projected disbursement totals.
d) Find historical data on clearings of disbursements from non-controlled disbursement accounts.
Answer: C. Deduct projected disbursement totals.
(Projected disbursement totals)
Which validation method tests a forecast using data that were not used to develop it, i.e., using 30 months of data for the forecast and the last 6 months of a three-year period to test?
a) In-sample validation
b) Out-of-sample validation
c) Ongoing validation
d) Documentation of the process
Answer: B. Out-of-sample validation
Complete the percentage-of-sales pro forma statement forecasting steps:
- Forecast ___________
- Calculate projected ending cash balance by projecting [step 1] cash impact.
- Compare projected ending and target
__________ and adjust pro forma statement to show fund source for shortfall or investment of surplus.
A. income statement and balance sheet & cash balance
B) cash flow statement & cash balance
C) income statement and balance sheet & profit
D) cash flow statement & profit
Answer: A. income statement and balance sheet & cash balance
The items listed below are some of the best practice in cash forecasting.
What is another of these best practices?
• Use appropriate detail.
• Use appropriate platform.
• Invest the appropriate amount of resources.
• Validate the forecast.
• Cooperate and communicate.
• Ensure the forecast is usable.
a) If a sophisticated treasury forecasting
system exists, use it for all forecasts.
b) Allow each business unit to develop
terminology and expectations.
c) Accuracy is always more important than timeliness.
d) Disclose assumptions.
Answer: D. Disclose assumptions.
Which is a typical drawback of using a bank portal or online banking
solution?
a) Like spreadsheets, lack security, auditability, version control, or integration
b) Like spreadsheets, data corruption potential is high and lack common database
c) Cannot provide self-service stop payments or transaction initiation
d) Cannot provide transaction initiation or inquiry for more than one bank
Answer: D. Cannot provide transaction initiation or inquiry for more than one bank
Which is one way to ensure that multistep processes are automatically
followed, including release authorizations?
a) Workflow management
b) Hosted solutions
c) Policy of segregation of duties
d) Documentation of end-user software
and spreadsheets
Answer: A. Workflow management
Does a company need to trust e-commerce partners more than paper
trading partners?
a) No; e-commerce partners have no special access to the company’s internal systems.
b) No; trust less if file transmission formats and languages are agreed upon first.
c) Yes; errors can propagated quickly through the electronic trading channel.
d) Yes; security breaches can have financial but not operational or reputational consequences.
Answer: C. Yes; errors can propagated quickly through the electronic trading channel.
Which is an important change from BAI2 to BTRS?
a) BTRS is not a standard but a commonly used format.
b) Currency rules are now mandatory for multicurrency applications.
c) 900 series and SWIFT and ISO 20022 XML code categories have been removed.
d) BTRS is not backward-compatible with BAI2 information-reporting format.
Answer: B. Currency rules are now mandatory for multicurrency applications.
Which eBAM model is illustrated?
a) Corporate-centric
b) Bank-centric
c) Utility
d) Basic TMS
Answer: C. Utility
A qualitative assessment of risk exposure should do all of the following EXCEPT:
a) find useful hedges in operating procedures.
b) determine how business processes contribute to risk and find solutions.
c) assess the materiality of exposure (i.e., high, medium, low).
d) ensure that financial risk derivatives are structured, sized, and accounted for properly.
Answer: C. assess the materiality of exposure (i.e., high, medium, low).
(quantitative assessment)
Match the following terms with the clues provided.
• Value at risk
• Sensitivity analysis
• Scenario analysis
• Monte Carlo simulation
- Impact of change in single variable;
identify most influential variables. - Developed in trading rooms to
estimate possible losses for a given
period. - Computer uses a series of probability
distributions to set multiple variables. - Changes more than one variable at a
time; experts supply range of values
Answer:
• Value at risk - 2. Developed in trading rooms to estimate possible losses for a given period.
• Sensitivity analysis - 1. Impact of change in single variable; identify most influential variables.
• Scenario analysis - 4. Changes more than one variable at a time; experts supply range of values.
• Monte Carlo simulation - 3. Computer uses a series of probability distributions to set multiple variables.
Each market risk is generally considered to be a component of financial risk EXCEPT:
a) equity price risk.
b) interest rate risk.
c) FX risk.
d) commodity price risk.
Answer: A. equity price risk.
Another view of financial risk
is its impact on firm value or a portfolios.
Which is a more significant source of employee risk than the others?
a) Defalcation risk
b) Fidelity risk
c) Employee data entry errors
d) Process risk
Answer: C. Employee data entry errors
(e.g., transposition or deletion
errors are very common)
What organizational culture do most risk management experts feel will help control operational risk?
a) One that minimizes individual responsibility and discourages educated risk taking.
b) Rigid approach to decision making.
c) Senior management admit a lack of
sufficient information as applicable.
d) Written policies for ethics at every
organizational level except executives.
Answer: C. Senior management admit a lack of sufficient information as applicable
Match insurance options and descriptions.
• Aggregate basis
• Claims-made basis
• Per-occurrence basis
• Liability limit
• Basic occurrence basis
a) Ways to obtain a significantly lower
premium versus first-dollar coverage.
b) Must consider total potential risk, cost
vs. limits, and cost vs. exposure.
c) Ways insurance payouts
can determine eligibility
Answer:
• Aggregate basis (A)
• Claims-made basis (C)
• Per-occurrence basis (A)
• Liability limit (B)
• Basic occurrence basis (C)
Which of the following is true of options?
a) American option: Exercise only on delivery date.
b) European option: Exercise any time on or before delivery date.
c) Bermuda option: Exercise only on specific, evenly spaced, dates over option’s life.
d) The break-even price can still result
in a loss due to the premium price paid
Answer: C. Bermuda option: Exercise only on specific, evenly spaced, dates over option’s life.
A $50 strike price call option is purchased when the underlying asset is selling for $46 per unit. The premium is $1. Identify if the following call options are in-, at-, or out-of-the-money.
• Price of Underlying Asset ($):
- OUT: 46
- AT: 50
- IN: 54
• $50 Call Option Value ($):
- OUT: 0
- AT: 0
- IN: 0
• Profit (+) or Loss (−) ($):
- OUT: -1
- AT: -1
- IN: +3
• Price of Underlying Asset ($):
- OUT: 46
- AT: 50
- IN: 54
• $50 Call Option Value ($):
- OUT: 0
- AT: 0
- IN: 0
• Profit (+) or Loss (−) ($):
- OUT: -1
- AT: -1
- IN: +3
A $50 strike price put option is purchased when the underlying asset is selling for $54 per unit. The premium is $1. Identify if the following put options are in-, at-, or out-of-the-money.
• Price of Underlying Asset ($):
- OUT: 54
- AT: 50
- IN: 46
• $50 Put Option Value ($):
- OUT: 0
- AT: 0
- IN: 4
• Profit (+) or Loss (−) ($):
- OUT: -1
- AT: -1
- IN: +3
• Price of Underlying Asset ($):
- OUT: 54
- AT: 50
- IN: 46
• $50 Put Option Value ($):
- OUT: 0
- AT: 0
- IN: 4
• Profit (+) or Loss (−) ($):
- OUT: -1
- AT: -1
- IN: +3
A Canadian company is billed in CNY but pays in USD. It buys a USD/CNY ____ based on the current Chinese invoice. At settlement, the company pays supplier in USD and must settle with the counterparty for change in FX rate.
a) Non-deliverable option (NDO)
b) Non-deliverable forward (NDF)
c) Plain vanilla option contracts
d) Forward rate agreement (FRA)
Answer: B. Non-deliverable forward (NDF)
Which ASC topic helps determine the real market price of an asset,
especially in volatile or illiquid markets?
a) Topic 815
b) Topic 820-10
c) Topic 830
d) Market price can be found without guidance.
Answer: B. Topic 820-10
(Fair-Value Measurement—
Overall)
If accounting treatment of hedge transactions does not meet tax authority requirements, the organization may not be able to treat _____ from derivative holdings as ______.
a) gains/losses; an offset to operational gains/losses
b) fair value; the current market value
c) fair value; derivatives on financial statements
d) gains/losses; hedges
Answer: A. gains/losses; an offset to operational gains/losses
Correctly designed controls must consider:
- Internal and external controls
- Reporting and audit trails
- Controls on 1.______________
- Compliance with 2. __________
- Achieved by a board resolution outlining position responsibilities:
3. _____________ - Key internal control that can reduce fraud and error risks: 4. ____________
A. stock exchange regulatory requirements SOX 404.
B. third-party service providers
C. Segregation of duties
D. Delegation of authority
Answer:
- B. third-party service providers
- A. stock exchange regulatory requirements SOX 404.
- D. Delegation of authority
- C. Segregation of duties
Which level of the four-level formal policy approval process focuses
primarily on the policy’s operational implications?
a) Treasury department
b) Other functional area managers
c) Internal audit and/or compliance group
d) Final approval (board of directors)
Answer: B. Other functional area managers
Which requires incorporating exception management into investment policy?
a) Investment opportunity on approved list needs formal or written approval
b) Handling upgraded investments
c) Ensuring that even low-risk exceptions are reported to audit committee
d) High-risk exceptions are found during
compliance testing
Answer: D. High-risk exceptions are found during compliance testing
Which party would NOT be designated in an investment policy as responsible for an annual review of the following?
• Evaluating and reviewing procedures
• Testing individual transactions for policy compliance
• Confirming that investment reports are effective and valid
• Recommending amendments to the policy or procedures
a) Internal or external auditors
b) Specific person or area outside the
policy-related area
c) Specific person within the functional
area
d) Compliance department
Answer: C. Specific person within the functional area
The items listed below are included in the financial risk management policy. What else should be included?
• Delegation of authority
• Segregation of duties
• Performance measurement/evaluation
• Management reporting
• Accounting/disclosure
• Trade/deal limits and monitoring
• Exception management
• Approved counterparties and limits
a) Scope of permitted hedging and
derivative activities and authorized
derivatives
b) Subcontractor and vendor compliance
c) Compliance monitoring activities
d) Audit requirements and disciplinary process
Answer: A. a) Scope of permitted hedging and derivative activities and authorized
derivatives
Which concern in a TMS policy is less of an issue if the system is an ERP system module?
A. Access to treasury systems and password requirements
B. Segregation of duties and reporting requirements
C. Reconcilement with accounting and other books of record
D. Backup and recovery and off-premises
access and use
Answer: C. Reconcilement with accounting and other books of record
(ERP systems have straight-through processing to accounting)
Which is true of defining and measuring equity investment risk?
A. Passive equity portfolios attempt to outperform an index.
B. Expected return and standard deviation quantify possible outcomes for entire portfolio.
C. Covariance measures single asset’s changes in isolation.
D. Portfolio risk is more dependent on covariance of assets than individual asset variance.
Answer: D. Portfolio risk is more dependent on covariance of assets than individual asset variance.
(Expected return and standard
deviation are for isolated securities.)
What is the main advantage of public offerings?
A. Access to capital markets has potential to raise large amounts of debt and equity at going rates.
B. Low cost in managing the reporting, disclosure, and rating agency requirements.
C. Low cost of filing 10-Ks, 8-Ks, and 10-Qs for US companies.
D. Investors want more equity in exchange for greater risk and lower liquidity.
Answer: A. Access to capital markets has potential to raise large amounts of debt and equity at going rates.
Which technique can be used to raise common equity?
a) Retain earnings during the period.
b) Repurchase common stock.
c) Pay all excess earnings out in dividends.
d) Change the company’s beta value.
Answer: A. Retain earnings during the period.
(The other method is to issue new common stock).
Why do treasury professionals track estimated residual value for a leased asset and ensure proper
maintenance?
A. Residual value is built into most lease arrangements, and potentially high
residual value can increase lease payments.
B. Lease may require payment of the difference between assumed and book
residual value (mileage/condition).
C. Lessee has primary claim on asset’s residual value.
D. Residual value may impact lease’s tax status and OBSA listing requirements.
Answer: D. Residual value may impact lease’s tax status and OBSA listing requirements.
Cash for acquiring a firm can come from all of the following sources EXCEPT:
A. cash from the acquiring company.
B. excess cash from the acquired firm.
C. cash from the sale of some of the acquired firm’s assets.
D. issuance of investment-grade bonds.
E. issuance of below-investment-grade bonds with no amortization schedule.
Answer: E. issuance of below investment-grade bonds with no amortization schedule.
(The amortization schedule in d is needed for item)
Which is an important means of returning capital to shareholders that
can be used as an alternative to paying cash dividends?
a) Stock splits
b) Special dividends
c) Stock repurchases
d) Intracompany dividends
Answer: C. Stock repurchases
Which is an important means of returning capital to shareholders that
can be used as an alternative to paying cash dividends?
a) Stock splits
b) Special dividends
c) Stock repurchases
d) Intracompany dividends
Answer: C. Stock repurchases
Section 956 of the US tax code requires a US shareholder of an OFC of a US MNC to currently include in income its pro rata share of any increase in the earnings of the OFC that are invested in US property. This is a:
a) transfer pricing issue.
b) deemed dividend issue.
c) intracompany loan issue.
d) restriction on dividend issue.
Answer: B. deemed dividend issue.
The items listed below are some of the primary uses for market analysis and research tools.
Which is another of these uses?
• Portfolio investment decisions (i.e., when purchasing/selling investments or managing the portfolio).
• Acquisition and divestment decisions
• Comparisons with other companies or industry averages.
a) Stock repurchase decisions
b) Evaluating trading partners for credit and counterparty risk
c) Evaluating when to delist stock
d) Stock split decisions
Answer: B. Evaluating trading partners for credit and counterparty risk
The items listed below are some of the primary uses for market analysis and research tools.
Which is another of these uses?
• Portfolio investment decisions (i.e., when purchasing/selling investments or managing the portfolio).
• Acquisition and divestment decisions
• Comparisons with other companies or industry averages.
a) Stock repurchase decisions
b) Evaluating trading partners for credit and counterparty risk
c) Evaluating when to delist stock
d) Stock split decisions
Answer: B. Evaluating trading partners for credit and counterparty risk
