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CTP Questions and Answers

Question # 6

A multinational company owns a United Kingdom subsidiary that has total assets equal to £1 million and intercompany loans due to the parent company equal to $1 million. It would like to undertake a balance sheet hedge of the U.K. subsidiary’s GBP liability because it expects a depreciation of the pound. Given these circumstances, which of the following actions would be appropriate?

A.

Borrow GBP from a U.K. bank to repay the intercompany dollar debt.

B.

Borrow USD from a U.K. bank to repay the intercompany dollar debt.

C.

Take no action because exchange rates cannot be predicted.

D.

Exchange rates are fixed and thus no losses should occur.

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Question # 7

A properly designed concentration system will potentially achieve which of the following results?

I. Increased authority to field offices

II. Increased investment income

III. Improved ability to take discounts

IV. Reduced dependence on third-party concentration vendors

A.

IV only

B.

I and II only

C.

II and III only

D.

II, III, and IV only

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Question # 8

Which of the following is NOT a key area to consider when establishing treasury policies?

A.

Equity method investments accounting

B.

Medium-term financing

C.

Management reporting

D.

Foreign currency management

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Question # 9

Which report is MOST LIKELY to be a current-day information report?

A.

Controlled disbursement totals

B.

Debit/credit transaction listing

C.

Loan transaction detail

D.

Multibank balance report

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Question # 10

Company Sales Figures:

  • 10% of sales collected in the current month of the sale
  • 45% of sales collected in the month after the sale
  • 30% of sales collected two months after the sale
  • 15% of sales collected three months after the sale
  • January Sales $300,000
  • February Sales $250,000
  • March Sales $400,000
  • April Sales $450,000

Based on the information above, what is the estimate for the company's April cash flows?

A.

$330,000

B.

$345,000

C.

$1,055,000

D.

$1,070,000

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Question # 11

What activity should the Treasurer be most interested in if core treasury functions were to be compared within the industry or cross-industry for the purpose of identifying “best practices”?

A.

Re-engineering

B.

Outsourcing

C.

Benchmarking

D.

Six Sigma

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Question # 12

In terms of targeting a company’s capital structure, when is it beneficial to assume a high level of financial risk?

A.

When the economy is rapidly expanding

B.

When the economy is experiencing slow growth

C.

When the company is experiencing growth

D.

When the rate of return on investments is advantageous

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Question # 13

Treasury uses all of the following types of internal information EXCEPT:

A.

projected weekly sales.

B.

security safekeeping activity.

C.

large outstanding collection items.

D.

debt repayment schedule.

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Question # 14

Which of the following is an advantage of a centralized treasury function?

A.

Policy setting is determined by local offices.

B.

It optimizes risk and portfolio management.

C.

It reduces subsidiary interaction.

D.

Regional offices are responsible for disbursements.

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Question # 15

A large U.S. based multinational corporation favors use of intra-company loans to repatriate funds from its foreign subsidiaries in order to take advantage of the favorable tax treatment of loans. In those countries which restrict repayment of intra-company loans the corporation may need to:

A.

negotiate repayment with the host government.

B.

conduct the repayment at “arm’s length”.

C.

pay licensing fees to the host government.

D.

hire a multinational bank to act as an intermediary.

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Question # 16

Compared to a letter of credit, a documentary collection is:

A.

less costly and offers less protection.

B.

less costly and offers more protection.

C.

more costly and offers less protection.

D.

more costly and offers more protection.

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Question # 17

An olive oil producer in Macedonia is arranging for shipment of its product to an international distributor. To support this activity, the company arranges for export financing because:

A.

the currency of the financing is different from the currency of the activity being financed.

B.

the time required to obtain approval is less than for commercial financing.

C.

no government involvement is required.

D.

the interest rate is lower than rates available from commercial sources.

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Question # 18

Which of the following institutions would be regulated by the Office of the Comptroller of the Currency (OCC)?

A.

Regency Bank Holding Company

B.

Regency Federal Credit Union

C.

Regency National Bank

D.

Regency Savings and Loan

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Question # 19

ABC Company has recently moved away from paper-based invoicing systems and has begun implementing e-commerce solutions. Realizing that its e-commerce implementation may have a negative impact on the float of its trading partners, ABC can do which of the following to help address this concern?

A.

Change the payment discount terms for the trading partners.

B.

Allow the trading partners to use the company's e-commerce solution.

C.

Negotiate larger order quantities from the trading partners.

D.

Agree to a uniform data transfer protocol for all trading partners.

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Question # 20

A farmer who plans to sell his/her corn crop in three months would benefit MOST from which of the following?

A.

A long futures contract and falling prices

B.

A long futures contract and steady prices

C.

A short futures contract and rising prices

D.

A short futures contract and falling prices

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Question # 21

The KEY decision in using CCD+ and CTX formats for B2B payments is:

A.

whether to keep the payment and remittance information together or separate.

B.

whether to use the Internet or an EDI spoke to transmit electronic payments.

C.

whether to use an EDI or a UN/EDIFACT protocol to transfer the value electronically.

D.

whether an evaluated receipts or paid-on-production technique is being used for the transfer.

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Question # 22

A company has $75 million in adjustable-rate debt, $25 million in fixed-rate debt, and $50 million in accounts receivable. If the company is concerned that interest rates will rise, which of the following would be the BEST interest rate derivative?

A.

An interest rate floor

B.

An interest rate collar

C.

A forward rate agreement

D.

An interest rate cap

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Question # 23

A trader of ABC Bank executed and audited his own trades. Assigning these two functions to the same person introduced which one of the following risks to the bank?

A.

Operational risk

B.

Currency risk

C.

Derivatives risk

D.

Regulatory risk

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Question # 24

What is the Weighted Average Cost of Capital for XYZ Company, assuming the following:

  • The pre-tax cost of long term debt is 8%
  • The cost of equity is 11%
  • The marginal tax rate is 33%
  • Total liabilities = $75,000
  • Long term debt = $50,000
  • Owners equity = $75,000

A.

7.2%

B.

7.8%

C.

8.7%

D.

12.4%

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Question # 25

What is the PRIMARY issue that management needs to consider when determining capital structure?

A.

Maintaining control of ownership

B.

Complying to rating agency and lender restrictions

C.

Using common stock as a source of funds

D.

Determining the mix of debt versus equity

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Question # 26

The right of stockholders to purchase, on a pro-rata basis, any new shares issued by the company is referred to as:

A.

preemptive right.

B.

right of first refusal.

C.

existing ownership right.

D.

prevention of dilution right.

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Question # 27

A French company conducts business strictly within the euro zone (the EMU). Which type of risk is of LEAST concern?

A.

Terrorist

B.

Regulatory

C.

Payment

D.

Currency

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Question # 28

The MOST effective way to reduce the internal risk of technology as it relates to critical treasury functions is to:

A.

implement an integrated accounts payable module as part of an automated general ledger package.

B.

secure complex spreadsheets with formula protection and multi-level password access.

C.

back up complex spreadsheets from PCs onto a local area network server daily.

D.

replace complex spreadsheets with certified treasury systems.

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Question # 29

The interest costs on commercial paper are determined by all of the following EXCEPT the:

A.

dealer fees.

B.

backup line of credit fees.

C.

rating agency fees.

D.

maturity of the paper.

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Question # 30

Which of the following is a ratio that is often used by commercial banks to measure a company’s leverage and does not include the effect of assets that are difficult to value or are NOT easily converted to cash?

A.

Long-term debt to capital

B.

Debt to tangible net worth

C.

Total liabilities to total assets

D.

Cash flow to total debt

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Question # 31

Fluctuations in interest rates and the availability of funds are more significant risks for companies that rely on:

A.

short-term borrowing for long-term uses.

B.

short-term borrowing for short-term uses.

C.

long-term borrowing for long-term uses.

D.

long-term borrowing for short-term uses.

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Question # 32

Investors typically require a higher yield as compensation for holding securities that have:

A.

less marketability.

B.

low default risk.

C.

shorter maturity.

D.

tax exempt status.

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Question # 33

All of the following are an EDI benefit EXCEPT:

A.

improved productivity.

B.

lower error rates.

C.

improved cash forecasting.

D.

lower start-up costs.

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Question # 34

All of the following are objectives of credit management EXCEPT:

A.

evaluating customer creditworthiness.

B.

preparing cash flow forecasts.

C.

maintaining up-to-date records of accounts receivable.

D.

initiating collection procedures.

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Question # 35

Which of the following is a purpose of the Check 21 Act?

A.

Grant legal status for digital signatures

B.

Foster innovation in the ACH payment system

C.

Facilitate check truncation

D.

Improve check imaging and archiving

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Question # 36

Which of the following services allows a bank to match checks presented for payment against company check issuance data?

A.

Payor bank services

B.

Check inquiry

C.

Positive pay

D.

High-order prefix

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Question # 37

Which of the following credit terms would be MOST appropriate for a seasonal product that a manufacturer wants to sell to a retailer during the product's off-season?

A.

2/10, net 30

B.

2/10, prox 30

C.

2/10, net 120

D.

3/15, 2/30, net 45

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Question # 38

Advantages of writing checks locally on a centralized disbursing bank include all of the following EXCEPT which statement?

A.

It minimizes the number of banks.

B.

It provides opportunity for volume discounts on bank charges.

C.

It reduces idle balances.

D.

It decreases administrative costs.

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Question # 39

XYZ Company has decided to purchase a close competitor. This acquisition would make XYZ Company the 4th largest in its industry allowing it better purchasing power and greater distribution channels. After completing the M&A analysis, it is determined that the combined companies would produce a 40% increase in revenue, reduce manufacturing costs by 30%, but would increase current liabilities by 27%. Which of the following would keep the acquisition from happening?

A.

Increased weighted average cost of capital

B.

Low return on investment

C.

Negative net present value

D.

Restrictive bond covenants

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Question # 40

XYZ Corporation uses ABC Bank for their lending and treasury management. In addition, the bank serves as bond trustee for XYZ Corp. If XYZ Corp. becomes distressed, this relationship could create a conflict of interest for the financial institution. What barrier prevents a financial institution from sharing confidential information between divisions?

A.

Chinese wall

B.

Counterparty risk

C.

Non-disclosure agreement

D.

Sarbanes-Oxley controls

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Question # 41

A town has $25 million excess funds to invest long term. The town’s investment policy requires it have full FDIC coverage on all investments. The town is willing to do its own due diligence on the financial institutions that they invest in, but would prefer to have one statement. Which of the following investment options meets its requirements?

A.

Certificate of Deposit Account Registry Service

B.

Separately managed diversified portfolio

C.

Institutional Money Market Account

D.

Jumbo Certificates of Deposit

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Question # 42

A treasury employee of Company XYZ is privy to financial reporting information yet to be released to the public. He knows that year-end earnings exceed last year’s and would be viewed as positive to the investment community. He casually mentions to a relative that now would be a good time to buy the stock of Company XYZ. Which section of the treasury code of ethics would typically be violated by such a disclosure?

A.

Employee conduct

B.

External activities

C.

Conflict of interest

D.

Confidential information

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Question # 43

A company with a relatively poor credit rating borrows most of its funds with short maturities. They may want to change its exposure to interest rates to more correctly reflect the long-term nature of the projects it is funding. Or, they may believe that long-term interest rates are going to rise, causing it to seek protection against the impact of higher interest rates on its balance sheet. Which of the following would be a solution?

A.

Forward contract

B.

Interest rate swap

C.

Currency option

D.

Futures contract

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Question # 44

A company expects the U.S. dollar to depreciate in value compared to the British pound. The company will have a British pound payment to make in five months. The company would MOST LIKELY buy:

A.

a U.S. dollar call.

B.

a U.S. dollar put.

C.

a British pound call.

D.

a British pound put.

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Question # 45

When using the Internet to access auction markets, companies may use certificate authorities to reduce their exposure to which of the following types of risk?

A.

Credit

B.

Valuation

C.

Counterparty

D.

Foreign exchange

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Question # 46

All of the following are discounted instruments EXCEPT:

A.

preferred stock.

B.

banker's acceptance.

C.

commercial paper.

D.

Treasury bills.

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Question # 47

Convertible securities consist of preferred stock anD.

A.

treasury stock.

B.

common stock.

C.

bonds.

D.

tracking stock.

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Question # 48

Which agency implements monetary policy through purchases and sales of treasury securities?

A.

Federal Deposit Insurance Corporation

B.

Fannie Mae

C.

Office of the Comptroller of the Currency

D.

Federal Reserve

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Question # 49

ABC Company’s Treasury department outsourced its overnight investment duties to XYZ Money Management. XYZ placed the funds received from ABC into corporate commercial paper, which has recently gone into default after numerous ratings downgrades. The investment policy of ABC Company states that all investments must be in investment grade commercial paper; however, the agreement gives XYZ the ability to make exceptions with the approval of the Treasurer of ABC Company. The Treasurer was never notified of the ratings downgrades. What role or responsibility, if any, was violated with regards to the investment policy?

A.

Exposure horizon monitoring

B.

Valuation of investment vehicles

C.

Policy approvals and exception management

D.

No violation occurred

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Question # 50

XYZ Company experienced a substantial monetary loss due to over exposure to one particular sector of the stock market. The Treasurer had invested in companies tied to five different sectors, but violated the company investment policy by exceeding a 10% limit for any sector. In developing its investment policy, what should XYZ Company have considered to prevent this scenario?

A.

Segregation of duties

B.

Exception management

C.

Internal and external controls

D.

Diversification of investments

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Question # 51

The Treasury Manager of a privately held company is looking to finance new equipment that has a useful life of 5 years. What type of financing would the Treasury Manager MOST LIKELY employ to finance the equipment?

A.

Equity shares

B.

Long-term bond

C.

High-yield bond

D.

Installment term loan

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Question # 52

Company ABC has expanded its banking relationships due to international growth. ABC cannot figure out why its collection float amongst its international customers is longer than its domestic customers. Additionally, ABC is incurring significant costs related to the receipt and processing of these customer payments. ABC is MOST LIKELY experiencing issues related to:

A.

SEPA credit transfer.

B.

international wire transfer.

C.

international bank consolidations.

D.

paper-based international payments.

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Question # 53

Because of the growing demand in China for oil, a transportation company decides to assume a long position on oil in hopes of generating short-term investment income. Which of the following describes the firm’s strategy?

A.

Speculation

B.

Arbitrage

C.

Hedging

D.

Risk management

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Question # 54

What type of tax does a multinational auto manufacturer commonly pay in foreign countries at each stage of a vehicle’s production?

A.

Withholding tax

B.

Capital tax

C.

Value added tax

D.

Asset tax

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Question # 55

In cash forecasting, which of the following is a certain cash flow?

A.

New product sales

B.

Interest payments on long-term debt

C.

Insurance claims pending settlement

D.

Vendor check-clearing patterns

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Question # 56

A customer buys a laptop for $850 and a CD for $13. Only items with sale price of $15 and greater are subject to value added tax (VAT). Assuming VAT of 8.5%, how much tax does the customer incur at the point of sale?

A.

$72.25

B.

$73.36

C.

$722.25

D.

$922.25

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Question # 57

XYZ Company has a well established commercial paper (CP) program that they use to fund operations. The company is expanding by purchasing a new factory. The CFO is worried about the time and expense needed to issue long-term debt and decides to use the funds they raise in the CP market to pay for the purchase of the factory. This strategy will be successful if:

A.

an interest rate swap is used.

B.

a credit default swap is employed.

C.

a commodities future is purchased.

D.

the yield curve remains upward sloping.

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Question # 58

Which of the following is an example of a Eurobond?

A.

A bond that is denominated in euros, issued in France by a French company.

B.

A bond that is denominated in euros, issued in the U.S. by a German company.

C.

A bond that is denominated in Japanese Yen, issued in the U.K. by a U.S. company.

D.

A bond that is denominated in U.S. dollars, issued in a European market by a U.S. company.

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Question # 59

Company XYZ is a high technology company. It is planning on acquiring another company in the high technology sector. Company XYZ does not have enough cash to acquire the company and is planning on financing the acquisition through a bond offering. Which of the following measures is company XYZ MOST LIKELY to use in its analysis of operating profits considering it is a high debt transaction?

A.

Long-term debt to capital

B.

EBITDA margin

C.

Net profit margin

D.

Return on equity

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Question # 60

Racklyn Paint Company, a new paint and construction company, has vendor payables of $2 million due periodically over the next 3 months; payroll payable to its crews of $500K each month; a mortgage of $4.4 million with a fixed rate of 6.0%; and an equipment loan of $5 million with a bank at a 30-day LIBOR plus 150 bp payment of $100K due monthly. Racklyn receives their first contract valued at $12 million with half of the contract value due at the time of contract and final payment upon completion. Racklyn expects the job to last 6 months. Which option would be the BEST use of Racklyn Paint Company’s cash?

A.

Prepay a portion of the equipment loan to minimize interest rate risk.

B.

Pay current payables and invest any excess cash in a money market account earning 1.5%.

C.

Pay off the mortgage and invest remaining funds in a 6-month CD at 2.5%.

D.

Invest $4 million in a CD at 2.5% for 3 months.

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Question # 61

A company transfers funds from its remote accounts by ACH with a one-day settlement and is notified of a same-day credit of $100,000 in one of its accounts. A wire transfer costs $27.75 incrementally. Assuming a 360-day year, which of the following is the minimum rate of interest that must be earned on these funds to justify the cost of a wire transfer?

A.

8.00%

B.

9.25%

C.

10.00%

D.

10.50%

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Question # 62

Which of the following business practices does NOT comply with the Uniform Commercial Code?

A.

A company reconciles its bank statements within 30 days of receipt.

B.

A company receives a check marked "paid in full" and disputes it 120 days later.

C.

A bank exercises ordinary care when it examines signatures on checks received.

D.

A bank elects to return stale-dated items.

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Question # 63

I. Banker’s acceptances

II. Commercial paper

III. U.S. Treasury bills

IV. Federal agency securities

Which of the following is the MOST usual ranking, from lowest to highest risk, of the investments listed above?

A.

I, III, IV, II

B.

III, IV, I, II

C.

IV, II, III, I

D.

IV, III, II, I

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Question # 64

XYZ Company is considering the purchase of a security that generates a tax equivalent yield of 10% and a tax exempt yield of 7.1%. What is XYZ's marginal investment tax rate?

A.

29.0%

B.

36.1%

C.

40.8%

D.

61.0%

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Question # 65

If a company uses accrual accounting, deferred taxes are reported on which financial statement?

A.

Statement of cash flows

B.

Balance sheet

C.

Income statement

D.

Statement of changes in retained earnings

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Question # 66

The earnings allowance rate applied to collected balances is usually determined by which of the following rates?

A.

90-day T-bill

B.

LIBOR

C.

Prime

D.

Fed Funds

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Question # 67

If a bank has a 10% reserve requirement, a 31-day month, and an earnings credit rate of 6.5%, which of the following is the approximate level of collected balances required to support $1.00 worth of bank service charges?

A.

$181

B.

$199

C.

$201

D.

$206

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Question # 68

There are 31 calendar days in the month, and the opportunity cost of funds is 9%.

What is the annual cost of float for the batches listed?

A.

$78,387.09

B.

$78,532.25

C.

$79,838.71

D.

$82,499.99

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Question # 69

A company wants to gather daily balance reporting from its international subsidiaries' bank accounts. Which of the following systems would allow the company's bank to gather the balance positions from the local banks?

A.

SWIFT

B.

CHIPS

C.

Giros

D.

EDI

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Question # 70

This question is based on the following data describing a company's actual deposits.

If a five-day moving average is used, what was the deposit forecast for day six?

A.

$75

B.

$85

C.

$90

D.

$110

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Question # 71

A company has a $300,000 credit line of which $200,000 was the average amount outstanding for the year. The terms of the loan include a 1/2 of 1% commitment fee on the unused portion, an interest rate of 10%, and a compensating balance requirement of 2% of the total credit line. The company's compensating balances are funded from credit-line borrowings.

What is the effective annual interest rate on the net usable funds?

A.

10.00%

B.

10.25%

C.

10.31%

D.

10.57%

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Question # 72

Which of the following is a typical overnight use of excess cash?

A.

Entering into a repurchase agreement

B.

Investing in Dutch auction preferred stock

C.

Purchasing a Treasury bill

D.

Purchasing a certificate of deposit

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Question # 73

All of the following are advantages of using traditional financial ratios for analysis EXCEPT:

A.

they can easily be computed from the information found in publicly available financial reports.

B.

they usually reflect accounting rather than economic values.

C.

they can be used to view historical trends and availability over time.

D.

they allow comparisons to be made between like companies.

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Question # 74

The company's monthly credit sales are in Table 1 and its receivables collection pattern is in Table 2. If this company wishes to achieve a second quarter (April-June) DSO of 60 days, what would its ending accounts receivable balance need to be?

Assume a 90-day quarter.

A.

$666,667

B.

$1,333,333

C.

$1,500,000

D.

$3,000,000

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Question # 75

From a buyer’s perspective, which of the following types of float would be eliminated if checks were replaced by electronic payment methods?

A.

Collection

B.

Invoicing

C.

Disbursement

D.

Lockbox

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Question # 76

An instrument that gives the right to buy a stated number of shares of common stock at a specified price is known as:

A.

an equity warrant

B.

a put option

C.

a zero coupon bond

D.

a subordinated debenture

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Question # 77

XYZ Company has one inventory supplier, and title to inventory is transferred to the company during the manufacturing process. Which of the following BEST describes XYZ’s relationship with its supplier?

A.

Collateralized

B.

Outsourced

C.

Supplier-managed

D.

Paid-on-production

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Question # 78

A lender is evaluating the creditworthiness of a company that has high levels of operating leverage. In determining the debt capacity of the company, the bank would MOST LIKELY prefer a:

A.

high total liabilities to total assets ratio.

B.

high debt to tangible net worth ratio.

C.

low long-term debt to capital ratio.

D.

low times interest earned ratio.

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Question # 79

A Chicago meat processor is concerned about the volatility of pork belly prices. Which of the following derivative products would be used to fix these prices within a given range?

A.

Collar

B.

Swap

C.

Cap

D.

Spot purchase

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Question # 80

A company with constant earnings and excess cash is considering a significant stock repurchase plan. Which of the following is MOST LIKELY to occur?

A.

Earnings per share will increase, and the number of shares outstanding will stay constant.

B.

Earnings per share will decrease, and the number of shares outstanding will increase.

C.

Earnings per share will increase, and the number of shares outstanding will decrease.

D.

Earnings per share will decrease, and the number of shares outstanding will stay constant.

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Question # 81

Which of the following trade payment methods virtually eliminates the seller's credit risk?

A.

Bankers’ acceptance

B.

Cash before delivery

C.

Countertrade

D.

Consignment

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Question # 82

An arrangement in which a borrower makes periodic payments to a separate custodial account that is used to repay debt is known as a:

A.

sinking fund

B.

balloon payment

C.

mortgage

D.

zero-coupon bond

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Question # 83

Two critical factors in determining an operational risk management strategy for a company are:

A.

organizational culture and technology.

B.

industry standards and competition.

C.

technology and data security.

D.

physical security and the number of manual processes.

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Question # 84

A publicly traded company is looking to fund its next project with the issuance of stock. The company’s stock is primarily held by a small group of investors. The company is concerned that issuing stock may upset these investors because it would dilute their holdings. Which of the following strategies would help address the investors’ concern?

A.

Grant the investors cumulative voting rights.

B.

Grant the investors pre-emptive rights to the new issue.

C.

Allow the investors to cast their votes by proxy at the next shareowners meeting.

D.

Offer to stagger the election of directors.

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Question # 85

Under Section 404 of the Sarbanes-Oxley Act, management must state its responsibility for which of the following?

A.

Knowledge of the penalties for noncompliance

B.

Selection of auditors who are knowledgeable about Sarbanes-Oxley requirements

C.

Establishment and maintenance of adequate internal controls for financial reporting

D.

Accuracy and completeness of financial statements

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Question # 86

One of the KEY risks associated with a company’s use of financial institutions is the possibility that:

A.

frequent account management turnover at an institution will disrupt the company’s operations.

B.

an institution’s operations will put the company in violation of the Gramm-Leach-Bliley Act.

C.

an institution will inadvertently share the company’s confidential data with its competitors.

D.

the institution will fail, which will have a financial impact on the company.

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Question # 87

A buyer receives an invoice from a supplier that offers discount terms of 3/10, net 60. What is the effective cost of discount?

A.

15.64%

B.

16.13%

C.

21.90%

D.

22.58%

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Question # 88

Which of the following is a type of borrowing between a company and a lender in which the paperwork connected with it is used to simplify the lending process?

A.

Trade credit

B.

Master note

C.

Securitization

D.

Commercial paper

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Question # 89

Financial statement preparation guidelines are provided by:

A.

FOMC.

B.

FDIC.

C.

FASB.

D.

FATF.

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Question # 90

If the spot foreign exchange rate and the forward foreign exchange rate are the same between two countries, which of the following is implied?

A.

The currency is at a discount to par.

B.

The currency is at a premium to par.

C.

There is an interest rate differential between the two countries equalizing the rates.

D.

The interest rate structure between the two countries is the same.

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Question # 91

Which of the following is NOT a component of the operating cycle?

A.

Determining stale inventory

B.

Acquiring materials or resources

C.

Selling goods or services

D.

Collecting payment

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Question # 92

All of the following are examples of treasury management system transactions for liquidity management EXCEPT:

A.

FX transactions.

B.

loan draw-downs.

C.

investment sales.

D.

loan paydowns.

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Question # 93

An institutional investor has purchased an investment that provides a fixed rate of return with some potential for delays in payments. The return is 70% tax deductible for this particular investor. What type of investment was MOST LIKELY purchased?

A.

Common stock

B.

Sinking fund debenture

C.

Preferred stock

D.

Bonds with warrants

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Question # 94

Securities sold by companies in an initial public offering (IPO) arE.

A.

a specific type of security sold by a public company for the first time.

B.

debt securities sold on the open market.

C.

public securities sold by a private company for the first time.

D.

securities sold by a private company to a limited number of investors.

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Question # 95

A nationwide retailer has been making EFT payments to its suppliers for several years. It will expand its processes to include consumer payments in its EFT initiative. Which of the following will support this initiative at the point-of-sale?

A.

Check truncation

B.

Consumer-to-business

C.

Paid-on-production

D.

Prearranged payment

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Question # 96

ABC Company, a leading provider of office supplies, has successfully implemented EDI based on a request from one of its customers. ABC will not only benefit from the strategic alliance that will result, but as more of ABC’s customers adopt the program, ABC will also experience a positive impact on its:

A.

EFT costs.

B.

C2C levels.

C.

value added networks.

D.

inventory levels.

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Question # 97

When company profits are high, what is the MOST LIKELY way management will prefer to finance growth?

A.

By borrowing funds

B.

By retaining earnings

C.

By investing in current assets

D.

By issuing stock

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Question # 98

Kensley Biscuit Company Ltd. decides to invest £125,000 in new packaging equipment to help it keep up with increased demand. As a result of this investment, the company’s annual profit improves by £11,763. If Kensley’s cost of capital is 8.25% and its corporate tax rate is 42%, what is its residual income (RI) from the investment?

A.

£842

B.

£970

C.

£1,451

D.

£11,763

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Question # 99

ABC Ltd. uses a third party lockbox provider to collect and clear its paper receivables. A customer disputes the price charged for a binding machine and issues a check to ABC Ltd. for 50% of the balance due, noting “paid in full” on the face of the check. The third party provider does not bring the check to ABC's attention prior to depositing it. Which regulation allows ABC to attempt to collect the remaining balance?

A.

UCC Article 2 - Clearing of Checks

B.

Federal Reserve Regulation CC

C.

UCC Article 3 - Negotiable Instruments

D.

UCC Article 4 - Bank Deposits and Collections

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Question # 100

Company XYZ is in its first year of operations. The company culture is conservative, and it has $500 million to invest in short-term investments. The company has a growth rate of 25% and is looking to issue an IPO in the near future. The investment manager is in the process of creating a short-term investment policy which must be approved by the board of directors. An item that should be included in the policy is:

A.

methods of monitoring compliance with the SEC.

B.

maximum dollar amount of mortgage-backed securities.

C.

internal controls for the enterprise resource planning system (ERP).

D.

methods of monitoring compliance with policies, procedures and internal controls.

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Question # 101

Sign Company and Paint Company have a twenty-year business relationship, and they work together when sending and receiving payments. Sign Company also does a large amount of business with Brush Company, a subsidiary of Paint Company. Brush Company’s Treasurer recently received a memo from the Treasurer of Paint Company reminding it that when dealing with vendors, extensive information is required when receiving or making ACH payments. What ACH payment format are Sign Company and Paint Company MOST LIKELY to use?

A.

CCD

B.

EBPP

C.

CCD+

D.

CTX

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Question # 102

A-Plus Company has made arrangements for a new insurance broker to provide products to its employees. Historically, A-Plus Company’s employees made insurance payments via payroll deduction, but the new broker will be collecting payments from employees directly. What will the broker MOST LIKELY use to minimize collection float?

A.

ARC

B.

CCD

C.

PPD

D.

RCK

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Question # 103

Usually, corporations receiving dividends from another corporation can exclude 70 percent of dividend payments from income for tax purposes as long as the stock is owned for at least:

A.

30 days.

B.

45 days.

C.

60 days.

D.

90 days.

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Question # 104

Recently LEW Utilities, a local utility company, began using the company processing center method to process customer payments. Prior to this change, it used its local depository bank’s lockbox to process the payments. The PRIMARY advantage of the new method is to:

A.

decrease mail float as a result of applying payments in-house.

B.

ensure that payments are correctly applied to the customer’s account.

C.

reduce the processing float since payments are mailed directly to the customer.

D.

lower overall costs since in-house processing is cheaper than third-party processing.

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Question # 105

What is the reserve-requirements provision of the Federal Reserve Act of 1913 known as?

A.

Regulation D

B.

Regulation E

C.

Regulation J

D.

Regulation Q

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Question # 106

Treasury management systems and ERP systems allow companies to do all of the following EXCEPT:

A.

reduce cash processing costs.

B.

migrate external data into G/L infrastructure.

C.

increase productivity through seamless exchange of data.

D.

reduce redundant data entry errors.

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Question # 107

A consumer is presented with payment options from a merchant when making a purchase. The consumer does not wish to share any information that could be later used in identity theft or fraud, while the merchant requires guaranteed payments within 24 hours with no NSFs or declined payments. Which of the following options would suit both the consumer and the merchant?

A.

NACHA’s Secure Vault PaymentsTM

B.

Credit card payment

C.

Direct debit

D.

E-check

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Question # 108

RAL Industries is a manufacturing company that currently has locations in the United States and Latin America and has just completed an acquisition of a company located in Europe. As a result of the acquisition, they have a large number of financial service providers. In an effort to reduce the number of providers and services used globally, RAL has decided to develop a formal selection process to consolidate its many global banking services. In order to reduce the amount of time the selection process takes, determine which services providers can offer, and the number of providers involved in the process, what should RAL Industries issue?

A.

Request for Quote

B.

Request for Proposal

C.

Request for Information

D.

Request for Participation

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Question # 109

A short-term bank line with $20 million of unused capacity and an investment in an overnight money market fund are both forms of which liquidity requirement?

A.

Precautionary

B.

Strategic

C.

Opportunity

D.

Transaction

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Question # 110

A multinational corporation (MNC) moving all of its Mexican peso-denominated revenues into a lower tax-rate jurisdiction could adopt any of the following treasury practices EXCEPT:

A.

a shared service center.

B.

an in-house bank.

C.

licensing fees to subsidiaries.

D.

a notional pooling program.

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Question # 111

Which of the following methods of compensation is NOT used by banks in the United States?

A.

Account service fees

B.

Value dating

C.

Wire charges

D.

Check clearing charges

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Question # 112

Which of the following payment instruments is initiated by the payee rather than the payor?

A.

Travelers checks

B.

Pre-authorized drafts

C.

Government warrants

D.

Money orders

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Question # 113

If the Federal Reserve wanted to stimulate a sluggish economy, it could do so by:

A.

increasing reserve requirements.

B.

buying U.S. government securities in the open market.

C.

selling U.S. government securities in the open market.

D.

increasing margin requirements.

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Question # 114

The cash manager for a company is creating a list of transactions that should be considered when determining the daily projected closing cash position. Which of the following transactions should be removed from the list?

A.

Controlled disbursement totals

B.

Estimates of non-controlled disbursement account clearings

C.

Expected settlements in collection (lockbox)

D.

Future-dated wire transfers and disbursements

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Question # 115

The MOST important tool the Federal Reserve Board has for influencing the amount of reserves in the banking system is:

A.

meetings of the Reserve Board of Governors.

B.

open market operations by the New York Federal Reserve.

C.

term limits for the Federal Reserve Governors.

D.

accepting tax payments on behalf of the IRS.

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Question # 116

When a company creates future receivables and/or payables that are denominated in a currency other than its home or functional currency it is faced with:

A.

economic exposure.

B.

transaction exposure.

C.

translation exposure.

D.

futures risk exposure.

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Question # 117

XYZ Company has incurred a financially devastating event because of a hurricane at its offshore manufacturing plant. Due to the impact on liquidity, the company may not be able to survive. What should the Treasurer have done in order to assess the risk associated with this type of event?

A.

Purchase sufficient insurance

B.

Negotiate back-up lines of credit

C.

Develop a contingency funding plan

D.

Evaluate financial derivatives contract

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Question # 118

The Cash Manager of ABC Logistics, Inc. sets a daily cash position by noon. All departments have been given an 11 a.m. cut-off for presenting wire requests and 2 p.m. for ACH requests. A wire request came in at 3:30 p.m. to make an insurance premium payment, in order to receive a discount. What liquidity reserve requirement is impacted?

A.

Regulatory

B.

Transaction

C.

Opportunistic

D.

Precautionary

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Question # 119

A U.S. company decides to enter a new geographic market facing some dominant competitors, but projects sales growth of 40% in its first year due to its superior product line. The company decides to only offer electronic payment methods for settlement of its receivables. A year later, the company’s sales volume only increases by 10%, but their average days’ sales outstanding of 32 days is the best in the industry. What should the company have considered in its collection policy objectives?

A.

Cost efficiency

B.

Customer satisfaction

C.

Performance measurement

D.

Approved collection practices

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Question # 120

A comprehensive payables service can do all of the following EXCEPT:

A.

send checks to a vendor.

B.

wire funds to a bank.

C.

set up ACH transfers.

D.

concentrate lockbox deposits.

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Question # 121

A company can dispute any check alterations within how many days after the bank statement has been sent?

A.

30 days

B.

60 days

C.

90 days

D.

180 days

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Question # 122

A supplier can improve invoicing float by:

A.

renegotiating credit terms.

B.

establishing a bank lockbox.

C.

shortening its order-entry process.

D.

factoring its receivables.

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Question # 123

MICR encoding errors may be detected by all of the following TMS modules EXCEPT:

A.

positive pay module.

B.

current day reporting.

C.

reverse positive pay module.

D.

prior day reporting.

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Question # 124

A company issues $5 million of commercial paper at a discount for 60 days. The interest cost is $85,000. The backup line fee for this transaction is $2,000, and the dealer fee is $1,000. What is the annual interest rate?

A.

10.56%

B.

10.71%

C.

10.74%

D.

10.89%

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Question # 125

An auto manufacturing plant in Michigan has high scheduled demand for its product. If the company does not have a long-term contract for raw materials, what type of exposure could it face?

A.

Delivery

B.

Transaction

C.

Economic

D.

Credit

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Question # 126

Company A anticipates the following cash inflows and outflows for the next three months:

If the company's treasurer is preparing a cash-flow projection for Month 2, and he is focusing purely on items that can be projected with a fair degree of certainty, what will the net projection be?

A.

($119,000)

B.

($104,000)

C.

$131,000

D.

$146,000

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Question # 127

BF Company, a manufacturer of food products, reported financial information shown in the Exhibit for the end of the year. BF Company is subject to covenants in its commercial paper program. It is in compliance with which of the following?

A.

Maximum long-term debt to capital of 52.5%

B.

Minimum working capital of $10,000

C.

Maximum dividends of 50% of net income

D.

Minimum cash flow to total debt of 45%

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Question # 128

According to the Capital Asset Pricing Model, which of the following would increase the required rate of return, given a beta of 1?

A.

A decrease in the tax rate

B.

An increase in the T-bill rate

C.

A decrease in the expected market return

D.

An increase in the company’s stock price

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Question # 129

Which of the following clears international checks?

A.

Correspondent banks

B.

Fedwire

C.

SWIFT

D.

Check truncation

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Question # 130

An increase in the availability float on a company's collections would cause a reduction in which of the following?

I. Earnings credit

II. Ledger balance

III. Service charges

IV. Collected balance

A.

I and II

B.

I and IV

C.

I, II, and III

D.

II, III, and IV

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Question # 131

A good credit rating has which of the following effects on debt?

I. Improved marketability

II. Decreased cost of funds

III. Decreased maturity

IV. Increased dealer fees

A.

I and IV

B.

I and II

C.

II and III

D.

I, II, and III

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Question # 132

Which of the following cash concentration transfers is MOST LIKELY to result in a bank ledger overdraft?

A.

A wire transfer of prior day's balances

B.

A DTC of current day's lockbox deposits

C.

An ACH transfer of anticipated deposits

D.

An ACH transfer of one-day available funds

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Question # 133

The purpose of cash letters is to:

A.

arrange currency deliveries from the Fed.

B.

request payment under standby letters of credit.

C.

collect merchant charge-card sales.

D.

facilitate the clearing of paper checks.

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Question # 134

A PRIMARY objective of the cash concentration function is to:

A.

move funds to where they can be used most productively.

B.

eliminate service charges at outlying field banks.

C.

minimize the number of disbursement banks required.

D.

improve the predictability of cash outflow.

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Question # 135

A KEY feature of municipal bonds is that they are:

A.

exempt from federal income taxes.

B.

issued on a discount basis.

C.

rated by the Comptroller of the Currency.

D.

available through the Treasury Direct Program.

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Question # 136

A banker's acceptance can be described as all of the following EXCEPT:

A.

a sight draft.

B.

a discount instrument.

C.

a liability of the accepting bank.

D.

an easily marketable instrument.

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Question # 137

The ACH system eliminates float because the:

A.

transactions are value-dated.

B.

transactions are initiated electronically.

C.

receiving and originating institutions settle simultaneously.

D.

Fed charges back the cost of float.

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Question # 138

Which of the following factors is NOT used by a cash manager to estimate a target compensating balance?

A.

Per-item service costs

B.

Average volume

C.

Ledger balance

D.

Earnings credit rate

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Question # 139

Which of the following will exempt commercial paper from SEC registration?

I. A maturity of fewer than 270 days

II. A rating grade of A-1 or P-1

III. Distribution through a licensed dealer

IV. Backing by a U.S. bank letter of credit

A.

I only

B.

IV only

C.

I and II only

D.

II, III, and IV only

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