Treasury Management

Question 1

is the act of managing a company’s daily cash flows and larger-scale decisions when it comes to finances.

It can provide governance over a company’s liquidity, establish and maintain credit lines, optimize investment returns, and strategize the best use of funds.

Answer 1

Treasury Management

Question 2

refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.

Answer 2

Liquidity

Question 3

occurs where cashflows into the banking system persistently exceed withdrawals of liquidity from the market by the central bank.

Answer 3

Surplus Liquidity

Question 4

is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously.

Answer 4

Liquidity Crisis

Question 5

is the transfer of non-core activities/functions to a third party provider, so the corporate treasury department can focus on the essential strategic tasks where they add unique value.

Answer 5

Treasury Outsourcing

Question 6

Factors to be considered in the selection of the Outsourcing Provider/Partner/Agent:
Minimizing the Risks from Outsourcing

Answer 6

ensuring the service provider has no access to the funds of the company;

setting up clear policy and authorities, limiting funds transfers and bank mandates to accounts in the name of the company

ensuring segregation of treasury duties and responsibilities

Question 7

Treasury Management Critical Responsibilities:

Answer 7

Asset Liability Management
Funds Transfers Pricing
Trading and Hedging
Integration/Projects
Portfolio Management

Question 8

concerns the blend of assets and liabilities that sit on a balance sheet and the subsequent mismatches between tenor, currency, and interest rate (cost).

Answer 8

Asset Liability Management

Question 9

is the process of costing a balance sheet and then setting the requisite prices for asset creators or liability gatherers to pay or earn for their respective tasks.

Answer 9

Funds Transfer Pricing

Question 10

these risk management strategies can range up from Foreign Exchange FX) spot trades to long-term interest rate swaps.

Answer 10

Trading and Hedging

Question 11

refers to a useful tool for integrating acquisitions into the company, or for spearheading IT transformation initiatives

Answer 11

Integration/Projects

Question 12

are financial asset management of the company, investing spare cash that sits on the balance sheet to generate a return.

Answer 12

Portfolio Management

Question 13

is the possibility of losing money on an investment or business venture.

Answer 13

Financial Risk

Question 14

is the process of identifying, assessing and controlling threats to an organization’s capital and earnings.

Answer 14

Risk Management

Question 15

Four Ts in Risk Mitigation

Answer 15

Transferring Risk
Tolerating Risk
Treating Risk
Terminating Risk

Question 16

can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization.

Answer 16

Transferring Risk

Question 17

is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business.

Answer 17

Tolerating Risk

Question 18

is a method of controlling risk through actions that reduce the likelihood of the risk occuring or minimize its impact prior to its occurrence. Also there are contingent measures that can be developed to reduce the impact of an event once it has occurred.

Answer 18

Treating Risk

Question 19

is the simplest and most often ignored method of dealing with risk. It is the approach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk.

Answer 19

Terminating Risk

Question 20

refers to the level of fluctuation the market is currently experiencing.

Answer 20

Market Volatility

Question 21

Impact of Market Volatility
What drives stock price volatility?

Answer 21

1. Political and economic factors
2. Industry and sector factors
3. Company performance

Question 22

is a line that plots yields
(interest rates) of bonds having equal credit quality but differing maturity dates.

Answer 22

Yield Curve

Question 23

Types of Yield Curve

Answer 23

Normal
Inverted
Flat

Question 24

up-sloped yield curve indicates yields on longer-term bonds may continue to rise, responding to periods of economic expansion.

Answer 24

Normal Yield Curve

Question 25

instead slopes downward and means that short-term interest rates exceed long-term rates.

Answer 25

Inverted Yield Curve

Question 26

is defined by similar yields across all maturities. A few intermediate maturities may have slightly higher yields, which causes a slight hump to appear along the flat curve.

Answer 26

Flat Yield Curve

Question 27

refers to the risk investors of fixed-income instruments (such as bonds) experience from an adverse shift in interest rates. Yield curve risk stems from the fact that bond prices and interest rates have an inverse relationship to one another.

Answer 27

Yield Curve Risk

Question 28

is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor.

Answer 28

Credit Default Swap

Question 29

Uses of Credit Default Swap

Answer 29

Hedging
Aribitrage
Speculation

Question 30

is an investment aimed at reducing the risk of adverse price movements.

Answer 30

Hedging

Question 31

is the practice of buying a security from one market and simultaneously selling it in another market at a relatively higher price, therefore benefiting from a temporary difference in stock prices.

Answer 31

Arbitrage

Question 32

An investor can buy an entity’s credit default swap believing that it is too low or too high and attempt to make profits from it by entering into
a trade.

Answer 32

Speculation