Treasury Flashcards
A financial product that acquires its value by inference through a formulaic connection to another asset. The other asset is termed the underlying asset, and can be a financial instrument (e.g., a stock or bond), currency, or commodity.
derivative
The time interval or delay between the day a payment (and any related remittance information) is mailed and the day it is received by a payee or at a payee’s processing site.
mail float
The process of turning over unclaimed assets to the government, in specific instances. In the business world, escheat statutes primarily impact banks or companies that hold unclaimed assets of customers or employees. The most general occurrence of escheat is when an entity (e.g., a bank) holds money or property (e.g., an account in that bank) and the property goes unclaimed for some specified period of time (generally referred to as a dormant account). In many jurisdictions, if the owner cannot be located, such property must be escheated to the government.
escheatment
In the cash conversion cycle, this is the average number of days between the purchase/receipt of materials or supplies and issuance of payment for them.
days’ payable
A measure of the number of years required to recover the true cost of a bond, considering the present value of all coupon and principal payments received in the future. In its simplest form, it is the weighted average time to receipt of all future cash flows associated with a bond investment, but it can also provide a measure of the sensitivity of the investment to changes in underlying interest rates. This is one of the primary measures of risk for a bond or fixed-income portfolio.
duration
A type of insurance coverage that provides payments to an organization in the event it is unable to pursue a normal line of business for some period of time due to an unforeseen event. Business interruption insurance generally covers the loss of profits and continuing fixed expenses (e.g., debt or lease arrangements) while the organization is temporarily out of business.
business interruption insurance
The due diligence procedures that a financial institution must follow to determine or verify the identity of its customers. This is considered a key part of anti-money laundering compliance activities.
know your customer (KYC)
The risk that the other party in a contract or financial transaction will not perform as promised. One component of this is related to credit and default risk. In a generic context, however, the concept extends to the risk related to any type of performance failure on the part of any of the counterparties with which an organization must interact.
counterparty risk
A type of note that is usually granted for a short period of time and specific purpose, with both the principal and interest amounts paid at maturity. Because of the limited duration and precise maturity of a single payment note, a specific cash flow event is frequently identified as the repayment source at the time the funds are advanced.
single payment note
The time interval or delay between the day when a check is deposited by the payee and the day when the payor’s account is debited.
clearing float
The attempt to conceal the source of ownership of money by creating a complex series of transactions (layers) in order to provide anonymity. Used in relation to money laundering
layering
A department or operation within a multiunit organization tasked with supplying multiple business units and their respective divisions and departments with specialized services, such as information technology (IT), human resources (HR), or accounts payable (A/P) services. In some companies this includes day-to-day treasury operations (cash management) and other treasury functions, which may be operated as this.
shared services center (SSC)
An organizational function that involves determining the need for present and future funding to support operations. An important part of this function is the forecasting of revenues, income, and external financing required to support the company’s planned growth.
financial planning
A type of bond that is usually issued as (1) a currency option bond that allows investors to choose among several predetermined currencies, or (2) a currency cocktail bond that is denominated in a standard basket of several currencies (e.g., special drawing rights).
multicurrency bond
A type of forecast in which the period of the forecast assumptions are reviewed and the forecast is updated or “rolled” forward at the end of each period. Typically, the number of periods in the forecast (days, weeks, months, etc.) remains constant, but old periods are dropped and new periods are added as the forecast progresses.
rolling forecast
A sophisticated information management, production, and accounting software package that links different functional areas or operational divisions of a company on an enterprise-wide basis.
Enterprising Resource Planning system (ERP)
A bond issued by a national government and typically denominated in the currency of the issuing government. Also referred to as sovereign debt.
sovereign bond
The inability to pay one’s debts in a timely manner. This term and bankruptcy are often used interchangeably, but in some jurisdictions, such as the United Kingdom, bankruptcy refers only to personal while this general term applies to both corporate and personal.
insolvency
A management tool used to measure a vendor’s performance in both a qualitative and quantitative method. The primary purpose of this is to provide a quantitative measure of the service provided and the benefit received, but it also provides feedback for the service provider to better understand how the customer perceives the value, quality, and cost of the service(s) provided.
vendor scored card
A system typically used to transfer funds from outlying depository locations (often at different banks) to a central bank account at a company’s primary bank, commonly referred to as a concentration account. These systems are used in situations where companies may have to deal with a number of separate banks in disbursed geographic locations.
cash concentration system
A US bankruptcy petition filed by a company that allows it to reorganize under court protection to restructure debts and emerge from bankruptcy after meeting certain conditions imposed by the court.
Chapter 11 bankruptcy
Foreign or cross-currency settlement risk, especially between bank counterparties; the risk that one party to a transaction defaults and is not able to fulfill its obligation to settle the transaction, potentially triggering a string of other defaults. This is named after a German bank that failed in 1974, causing a cascading string of payment defaults.
Herstatt risk
The concept of having more than one person required to complete a specific activity, such as making a vendor payment or collecting and posting revenue from customers. This is a key internal control issue that is important in managing risk and reducing fraud. At an operational level, responsibilities such as approval, authorization, and verification functions, including expense approval, check-signing authority, and account reconciliation, should be separated.
segregation of duties
A type of sales tax that involves charging a separate tax at each discrete stage of production and/or distribution based on the increased value (i.e., value added) occurring at that stage.
value-added tax
An accounts receivable (A/R) financing process that involves the outright sale of receivables to a factor, a company that specializes in the financing and management of receivables. It may be performed on a with or without recourse basis. In a with recourse arrangement, it may return any uncollectable A/R to the seller for full credit. In a without recourse arrangement, this takes all the risk of default on the A/R.
factoring
The inability to pay one’s debts in a timely manner. This term and bankruptcy are often used interchangeably, but in some jurisdictions, such as the United Kingdom, bankruptcy refers only to personal while this general term applies to both corporate and personal.
insolvency
A classification for securities that are impaired (i.e., market value is less than adjusted cost) and whose impairment is not or cannot be expected to be cured in the foreseeable future. If a security is considered to be temporarily impaired due to market or credit conditions, then there is considerable flexibility in accounting for that security. If, on the other hand, the impairment is deemed to be other-than-temporary, then the Financial Accounting Standards Board has provided amended guidelines (ASC Codification Topic 325: Investments—Other) for the valuation of these securities.
other-than-temporary impairment (OTTI)
A comprehensive, organization-wide approach to identifying, measuring, and managing the various risks that threaten the achievement of an organization’s strategic objectives and therefore its overall operations. It is characterized as having a viewpoint that encompasses all areas of the organization.
enterprise risk management (ERM)
A payment instrument resembling a check that is drawn against the payor rather than the bank. It is handled like a check through the clearing process, but the responsibility for paying the draft lies with the payor, referred to as the drawee in the case of drafts.
payable through draft (PTD)
Concerned primarily with the legal liability of losses caused by personal injury or property damage, this type of insurance provides specific coverage for a variety of losses. Typical examples include plate glass, crime, robbery, boiler or machinery, and aviation insurance. Many insurers also write surety bonds and other forms of insurance not classified as property insurance.
casualty insurance
This reg implements provisions of the Electronic Funds Transfer Act of 1978, which establishes the rights, responsibilities, and liabilities of parties engaging in consumer-related EFTs. (also ATMs, ACH, and credit cards)
Reg E
An equity account that reflects the difference at the time of issue between the par value and the issuance price (less underwriting costs) of any new stock sold by a company.
additional paid in capital (APIC)
A special arrangement between a bank and a company, in which the bank lets the customer receive or make payments in a range of currencies from a single account or multiple subsidiary accounts.
multicurrency account
(1) In the check clearing process, this is the bank that accepts a check for deposit and collects the funds from the payee’s bank. The bank is also referred to as the bank of first deposit or depository bank.
(2) In a documentary collection process, this is the bank (the buyer’s bank) that presents the documents to the buyer. The bank is also referred to as the presenting bank.
collecting bank (presenting bank)
This reg implemented the interest-bearing account resolution of the Glass-Steagal Act of 1933 and barred the paying of interest on any corporate demand deposit accounts.
Reg Q
Revenues/ Current Assets
current asset turnover
The interval that begins with the purchase of raw materials or parts from vendors and suppliers at the start of the operating cycle and ends when payment is received from customers at the completion of the operating cycle
cash flow timeline
An XML-based global messaging standard for the financial services industry whose intended use is transmitting information related to securities, payments, financial reporting, account management, international trade, and foreign exchange.
International Organization for Standardization - ISO 20022
The total dollar value of earnings credit (imputed interest) that can be used by a company to offset the bank service charges incurred during the account analysis period.
earnings credit allowance
A tax owed on the value of accumulated real property or business equipment, or on the value of a financial portfolio. This tax may be charged in some countries in order to impose tax liabilities on a business even through that business may not show a profit or owe income tax on an international project.
asset tax
An authentication method for information technology and network purposes requiring the presence of different factors of authentication: (1) something the individual knows, such as a password or personal fact; (2) something the individual has, such as a token or a cell phone; and (3) something the individual is, such as a fingerprint or facial scan.
multifactor authentication
A medium-term cash forecasting technique that involves projecting financial statements based on the historical relationship between sales and liquid balance sheet accounts that tend to change in value along with sales. Cash, accounts receivable, inventory, and accounts payable are the more important accounts. Account size (e.g., cash or inventory) is expressed as a percentage of sales. This percentage is then used in conjunction with forecasted sales to produce a forecast of account size.
percentage-of-sales method
A system typically used to transfer funds from outlying depository locations (often at different banks) to a central bank account at a company’s primary bank, commonly referred to as a concentration account. These systems are used in situations where companies may have to deal with a number of separate banks in disbursed geographic locations.
cash concentration system
A pay service that matches against the payee field, in addition to the serial number and amount of a check, in an effort to detect an altered payee.
payee positive pay
A type of wire transfer where the debit and credit parties remain the same (as in a repetitive wire transfer), but the description (e.g., a customer or an invoice number) may be changed, along with the date and the dollar amount.
semi-repetitive wire
In a payment clearing process, this is one of two banks that have accounts with each other for the purpose of clearing and settlement of payment items between the banks.
correspondent bank
An international standard for identifying bank accounts across national borders.
International Bank Account Number (IBAN)
Under New York Stock Exchange standards, this is a director who has no material relationship with the listed company, either directly or as a partner, shareholder, or officer of the organization.
Independent Director
An account used by an organization to receive funds from collection accounts or to provide funding for disbursement accounts as part of a zero balance account (ZBA) arrangement. These accounts are sometimes referred to as concentration accounts.
master account
A tax-motivated, short-term investment strategy that is available to corporations that pay taxes in the United States. A corporation may exclude from its taxable income 70–80% of the dividends received from stock owned in another corporation, as long as it owns the stock for at least 46 days of the 91-day period starting 45 days prior to the ex-dividend date. Even though this requires an equity investment, the strategy is considered a short-term investment because the stock is held only long enough to capture the dividend and qualify for the dividend exclusion.
dividend capture
In a payment system, this is the point in time when the payee can use the funds provided by the payment, even though the payment may not be final.
availability
A value that represents the price per share of a mutual fund or an exchange-traded fund. It is generally calculated as the total value of all the securities or assets in the fund (less any liabilities) divided by the number of shares outstanding. For most funds, this will fluctuate as the market values of the securities in the fund portfolio change. The primary exception is a money market fund, which generally has a fixed equivalent to one unit of the currency of denomination.
Net asset value (NAV)
A cross-border financing instrument that can be used to finance the import, export, or domestic shipment of goods, as well as the storage of properly titled goods. They are used frequently in conjunction with letters of credit (L/Cs) requiring a time draft drawn on a bank. This is created when one person signs an unconditional written order directing a bank to pay a certain sum of money on demand or at a definite time to another person, usually to finance the shipment or temporary storage of goods. The unconditional written order, also known as a time draft, is stamped “accepted” by the bank.
banker’s acceptance (BA)
The time interval or delay between the time the buyer/payor initiates payment and the time the seller/payee receives good funds; it consists of mail float, processing float, and availability float.
collection float
A process whereby a bank sets a forward value date on which the value of funds credited to an account is determined and establishes a back value date on which the value of funds debited from or credited to an account is determined.
value dating
An account with a financial institution that is owned by a nonresident of the country in which the account is held.
nonresidential account
The practice of having treasury become the main provider of banking services for all the company’s operating entities.
in-house bank
(AR/Rev) x 365
In the cash conversion cycle, this is the average number of days required to convert a credit sale into a collection.
days’ receivable
(Inv/COGS) x 365
In the cash conversion cycle, this is the average number of days that elapse from the purchase of raw materials until the sale of finished goods.
days’ inventory
What are the major provisions of the Gramm-Leach-Bliley Act?
- eliminates the provisions of the Glass-Steagal Act
- permits the creation of financial holdings companies (FHC) that can engage in any activity that the Fed considers financial in nature
- establishes the Fed as the primary regulator of FHCs
- allows easier entry into the US by foreign banks
- includes consumer protection provisions
In processing checks, this is the bank in which a check is initially deposited as part of the clearing process. Also known as the depository bank or collecting bank.
bank of first deposit
In an automated clearinghouse transaction, this is the financial institution that acts as an intermediary between the originator and the receiver, on the receiver’s side of the transaction.
receiving depository financial institution (RDFI)
An electronic message that instructs the originating depository financial institution to move funds from the originator’s account to the receiver’s account at the receiving depository financial institution.
Automated Clearinghouse (ACH) credit transaction
In the cash conversion cycle, this is the average number of days required to convert a credit sale into a collection.
days’ receivable
A management tool used to measure a vendor’s performance in both a qualitative and quantitative method. The primary purpose of this is to provide a quantitative measure of the service provided and the benefit received, but it also provides feedback for the service provider to better understand how the customer perceives the value, quality, and cost of the service(s) provided.
vendor score card
The rate of return anticipated on a bond if it is held until the maturity date. This is considered a long-term bond yield expressed as an annual rate. The calculation takes into account the current market price, par value, coupon interest rate, and time to maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes, this is simply referred to as yield.
yield to maturity
In working capital management, this formula explains and calculates how much time elapses from when funds are disbursed in direct support of a revenue-generating activity until the time when funds are recovered from revenues. It is calculated as days’ receivables plus days’ inventory minus days’ payables. The result is the average number of days between the cash outflow for the acquisition of materials and supplies, and the cash inflow from the sale of products or services.
cash conversion cycle (CCC)
A period of time, often specified in a loan agreement, in which an event of default may be corrected before the lender may pursue default remedies.
cure period
The period of time between the day that a bill or invoice is sent/received (depending on the perspective of the seller or buyer) and the day that payment is actually credited to the biller’s bank account.
payment float
CA/CL It is the ratio of cash and assets expected to become cash in one year or less, to short-term liabilities that must be paid in one year or less.
current ratio
A payment instrument resembling a check that is drawn against the payor rather than the bank. It is handled like a check through the clearing process, but the responsibility for paying the draft lies with the payor, referred to as the drawee in the case of drafts.
payable through draft (PTD)
An investment bank function that involves consultation with a company raising funds about the characteristics of a securities issue and any underlying documents. The investment bank also monitors market conditions and advises the company about the best time to bring the issue to market in order to maximize the price per issued share and the amount of funds the firm wishes to raise.
origination
A type of bank account (typically used for disbursements via check or electronic funds transfer) where the end-of-day balance in the account is maintained at zero. Transfers are made from a master account to fund this account, typically at the end of the day. This can also be set up as a depository account from which funds are debited and transferred to a master account at the end of each day.
zero-balance account (ZBA)
A balance sheet account that represents the accumulated net earnings of a corporation since its inception, less dividends paid to shareholders. It also represents the changes in shareholders’ equity arising from the retention of profits and losses of the company, less any dividends paid out to shareholders.
retained earnings
This reg establishes procedures, duties, and responsibilities for check collection and settlement through the Federal Reserve System.
Reg J
The inability of the purported maker or originator of a statement, document, or payment to challenge the validity of the original item. It may also be used to refer to the inability of a receiver to deny having received the item.
non-repudiation
Requires FIs and creditors to develop and implement written identity theft prevention programs, as part of the Fair and Accurate Credit Transactions Act of 2003 (FACT)
Red Flags Rule
A type of bond issued by a level of government below the national or central government, which includes regions, provinces, states, municipalities, etc. These are subject to a wide variety of national and regional provisions in their country of origin and may have tax implications.
sub-sovereign bond
A liquidity ratio that is calculated as cash plus short-term investments and accounts receivable, (cuurrent assets - inventory) divided by total current liabilities. It is also known as the acid test ratio because it is a more stringent measure of liquidity than the current ratio.
Quick Ratio (acid test ratio)
A type of option contract that gives the contract owner the right, but not the obligation, to buy the underlying asset from the contract writer at a fixed price through the delivery date.
call option
This reg applies the Truth in Lending Act (TIL) which promotes informing consumers about credit use. (credit cards, home mortgages, student loans, and installment loans)
Reg Z
Days’ Inventory + Days’ Receivables - Days’ Payables In working capital management, this formula explains and calculates how much time elapses from when funds are disbursed in direct support of a revenue-generating activity until the time when funds are recovered from revenues. It is calculated as days’ receivables plus days’ inventory minus days’ payables. The result is the average number of days between the cash outflow for the acquisition of materials and supplies, and the cash inflow from the sale of products or services.
cash conversion cycle (CCC)
A current asset financing strategy that involves using longterm financing (e.g., debt and equity) to finance fixed assets, permanent current assets, and some portion of fluctuating current assets. Short-term financing is used for the remainder of the fluctuating current assets.
conservative financing strategy
