EOTM 6 - Quiz Question

Question 1

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

A) Prioritize investments for profit.
B) Perform financial planning and
analysis.
C) Optimize cash resources.
D) Set organizational strategy.• Manage risk.

Question 2

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

Question 3

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

Question 4

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

Question 5

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 5

Answer: C. Deposit insurance

Depositors may not investigate a bank’s
creditworthiness; banks may undertake more risk. (p. 2-5)

Question 6

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 6

Answer: B. Central banks

Question 7

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 7

Answer: D. European Market Infrastructure Regulation

For OTC derivatives

Question 8

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 8

Answer: D. CFTC and SEC

Question 9

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 9

Answer: A. FinCEN enforces counter-money laundering legislation and
provides intelligence for investigations and prevention strategies.

Question 10

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 10

Answer: B. Accounts that permit multiple payments or transactions

Question 11

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:

Answer 11

Answer: C. State that is residence of customer being escheated

Question 12

Complete the following Chapter 7 bankruptcy priority of claims.

1. Specific property pledged (e.g., lien)
2. Trustee’s costs
3. Pre-trustee involuntary liquidation expenses
4. Wages earned three months prior to filing
5. Unpaid benefit contributions owed six months prior
6. Unsecured claims for customer deposits
7. Taxes due
8. Unfunded pension plan liabilities up to 30% of book value of common/preferred equity
9. General unsecured creditors
10. Preferred stockholders (paid up to par value)
11. Common stockholders (receive remaining funds)

Question 13

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 13

Answer: A. accepts deposits and makes commercial loans.

Question 14

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 14

Answer: B. Credit unions operate in over 100 countries.

Question 15

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 15

Answer: C. Buy- and sell-side transactions should
be separated by a “wall” to prevent
each party from getting and acting on MNPI.

Question 16

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 16

Answer: B. Full-service institutional broker

Question 17

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 17

Answer: C. Transit

Question 18

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 18

Answer: B. After it receives and converts the proceeds

Question 19

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 19

Answer: B. Gross settlement has a separate value transfer between payor and payee and is usually accompanied by real-time settlement. (RTGS)

Question 20

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 20

Answer: D. Acting as a “gateway” bank and performing FX conversion.

Question 21

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 21

Answer: C. Audit systems and applications.

Question 22

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 22

Answer: C. Interest rate risk

Question 23

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 23

Answer: B. Floating rate notes (FRNs)

Question 24

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 nongovernment 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 24

Answer: A. Redemption fees will be assessed for nongovernment institutional or retail funds.

Question 25

Identify the following market characteristics as primary, secondary, or private.

Answer 25

Answer: Answers (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

Question 26

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 26

Answer: B. Indentures (p. 2-167)

Question 27

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 27

Answer: B. Eurobond (p. 2-169)

Question 28

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 28

Answer: B. Right to issue additional debt

Question 29

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 29

Answer: B. Can make payments into a trust each year to retire the issue at maturity

Question 30

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 30

Answer: C. A company doesn’t risk bankruptcy by missing a preferred stock dividend.

Question 31

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 31

Answer: A. Increases global trade, including transaction volumes on both local and foreign markets

Question 32

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 32

Answer: C. Documenting both parties’ expectations in agreements and
legal contracts

Question 33

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 33

Answer: D. Provides feedback on perceived value and quality versus cost of services

Question 34

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 34

Answer: A. Strengthen the process.

Question 35

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 35

Answer: A. earlier than

Bank sets forward value date when value is credited and back value date when value is debited

Question 36

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 36

Answer: D. Earnings credit allowances

Question 37

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 37

Answer: A. Conflict of interest, if FSP protects own credit to detriment of borrower and bondholders

Question 38

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 38

Answer: C. IFRS might result in different interpretations of specific situation

Question 39

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 39

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.

Question 40

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 40

Answer: C. Comprehensive income

Question 41

Identify whether changes in each of the balance sheet accounts is a source or use
of funds on the statement of cash flows.

Answer 41

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

Question 42

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 42

Answer: A. If not hedge instruments—report in current income.

(b recognizes offsetting gains and losses;
c and d are reported in comprehensive income)

Question 43

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 43

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

Question 44

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 44

Answer: B. In determining impact on debt

Question 45

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 45

Answer: C. Financial leverage results from fixed financing costs (interest).

Question 46

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 46

Answer: A, C, D, E

Degree of indebtedness ratios: relative indebtedness

Question 47

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 47

Answer: A. Balance sheets have higher current assets, especially A/R.

Question 48

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 48

Answer: C. Liability categories as a percentage of total assets can be compared.

Question 49

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 49

Answer: D. Rapid expansion of capital base is required to fund growth.

Question 50

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 50

Answer: C. Send and receive payment.

Question 51

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 51

Answer: D. buyer’s/payor’s account is debited; disbursement float

Question 52

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 52

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

Question 53

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 53

Answer: B. Won’t sell to customers with good credit who are a bit slow in paying

Question 54

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 54

Answer: A. Current assets (credit sales) and current liabilities (fewer assets or more liabilities)

Question 55

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 55

Answer: C. The just-in-time approach is commonly used.

Question 56

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 56

Answer: C. Company has less risk due to higher cash holdings.

Question 57

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 57

Answer: A. Company may decline trade credit to customers who are an acceptable credit risk.

The Five Cs of Credit

Question 58

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 58

Answer: Approved PO and receiving or
shipping information

Question 59

All are multicurrency account stipulations EXCEPT

a) the base currency in which the account is denominated.
b) the currencies not accepted. (All others are 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 59

Answer: B. the currencies not accepted. (All others are accepted.)

Corrected: “currencies accepted

Question 60

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 60

Answer: B. Lagging

Question 61

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 61

Answer: C. Aggregates many small transactions into fewer larger ones

Question 62

Given a cash conversion cycle of 81.04 days, how many CCCs are there in a year (cash turnover ratio)?

Answer 62

Answer:

Cash Turnover = 365 Days / Cash Conversion Cycle

365/81.04 = 4.5 time

Question 63

Describe two situations when a buyer should forgo an offered cash discount.

Answer 63

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.

Question 64

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 64

Answer: B. Customers that delay payment intentionally until follow-up is initiated

Question 65

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 65

Answer: A. Balance reporting services

Question 66

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 66

Answer: C. Check-cashing store

Question 67

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 67

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.

Question 68

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 68

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

Question 69

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%?

Discount = 1 - [1/1+TD (r/365]
Discount = 1 - [1/1+ 2 (0.06/365)

a) 0.033%
b) 0.038%
c) 0.041%
d) 10%

Answer 69

Answer: 0.000329 round up to A. (0.033%)

Question 70

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 70

Answer: C. Consolidated remittance processing (CRP)

Question 71

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 71

Answer: A. sight; collecting

Question 72

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 72

Answer: B. It is used when a primary bank has branches in several countries but not full domestic banking.

Question 73

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 73

Answer: C. Keeping securities at the brokerage firm where purchased

Question 74

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 semiannual coupon.
d) They have no dollar discount.

Answer 74

Answer: B. They pay no interest but are issued at less than par value and pay par value at maturity.

All are discounted instruments

Question 75

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 75

Answer:

A. “Risk free, default risk”
B. “Liquid, liquidity risk”
C. “Default risk, liquidity risk”
D. “Maturity risk, maturity”

Question 76

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 76

Answer: C. Interest rate caps, collars, swaps, floors

(Answer b relates to risk of tightening credit standards).

Question 77

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 77

Answer: C. Firms can solicit ratings to ensure an appropriate rating prior to a future debt offering.

Answer a refers to issue-specific ratings

Question 78

Identify the following forecasting horizons.

1. Short-term
2. Medium-term
3. Medium-term
4. Long-term

Answer 78

Answers:

1. Short-term
2. Medium-term
3. Medium-term
4. Long-term
5. • Short-term - Used to establish and manage target balances for bank compensation
6. • Medium-term - Used to determine the company’s need for short-term credit or availability of funds for short-term investing
7. • Medium-term - Used as a benchmark to compare actual to projected cash flows on the cash budget
8. -Long-Term- Used by financial institutions and rating agencies for credit analysis

Question 79

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 79

Answer: C. Projected disbursement totals.

Question 80

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 80

Answer: B. Out-of-sample validation

Question 81

Complete the percentage-of-sales pro forma statement forecasting steps:

1. Forecast ___________
2. Calculate projected ending cash balance by projecting [step 1] cash impact.
3. Compare projected ending and target
   __________ and adjust pro forma statement to show fund source for shortfall or investment of surplus.

A. 1. income statement and balance sheet; 3.cash balance
B) 1. cash flow statement; 3. cash balance
C) 1. income statement and balance sheet; 3.profit
D) 1. cash flow statement; 3. profit

Answer 81

Answer: A. 1. income statement and balance sheet; 3.cash balance

Question 82

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 82

Answer: D. Disclose assumptions.

Question 83

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 83

Answer: D. Cannot provide transaction initiation or inquiry for more than one bank

Question 84

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 84

Answer: A. Workflow management

Question 85

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 85

Answer: C. Yes; errors can propagated quickly through the electronic trading channel.

Question 86

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 86

Answer: B. Currency rules are now mandatory for multicurrency applications.

Question 87

Which eBAM model is illustrated?

a) Corporate-centric
b) Bank-centric
c) Utility
d) Basic TMS

Answer 87

Answer: C. Utility

Question 88

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 88

Answer: C. assess the materiality of exposure (i.e., high, medium, low).

(quantitative assessment)

Question 89

Match the following terms with the clues provided.

• Value at risk
• Sensitivity analysis
• Scenario analysis
• Monte Carlo simulation

1. Impact of change in single variable;
   identify most influential variables.
2. Developed in trading rooms to
   estimate possible losses for a given
   period.
3. Computer uses a series of probability
   distributions to set multiple variables.
4. Changes more than one variable at a
   time; experts supply range of values

Answer 89

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.

Question 90

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 90

Answer: A. equity price risk.

Another view of financial risk
is its impact on firm value or a portfolios.

Question 91

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 91

Answer: C. Employee data entry errors
(e.g., transposition or deletion
errors are very common)

Question 92

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 92

Answer: C. Senior management admit a lack of sufficient information as applicable

Question 93

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 93

Answer:
• Aggregate basis (A)
• Claims-made basis (C)
• Per-occurrence basis (A)
• Liability limit (B)
• Basic occurrence basis (C)

Question 94

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 94

Answer: C. Bermuda option: Exercise only on specific, evenly spaced, dates over option’s life.

Question 95

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

Answer 95

• 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

Question 96

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

Answer 96

• 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

Question 97

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 97

Answer: B. Non-deliverable forward (NDF)

Question 98

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 98

Answer: B. Topic 820-10

(Fair-Value Measurement—
Overall)

Question 99

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 99

Answer: A. gains/losses; an offset to operational gains/losses