TM Midterm 1

Upon entering into an interest rate swap with a notional principal of $10,000,000, what is the initial amount of money the counterparties must exchange at the beginning of the swap?

$0

A main characteristic of a company with regional offices using centralized treasury function is

high level of control

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:

the yield curve remains upward sloping

Checks and balances with regards to Treasury activities are important because

treasurers deal with the cash of the company in all aspects

In case of bankruptcy, what is the order of payment for the following: 1-Bankruptcy Trustee, 2-Senior Debt, 3-Common Shareholders, 4-Taxes owed, 5-Subordinated bond holders:

2, 1, 4, 5, 3

Using the above information, what is the cash turnover for the company?

5.3 times

The company currently calculates its Days Receivables at 42 days, its Days Payables at 31 days, and its Days Inventory at 58 days. What is the cash conversion cycle for the company?

69 days

Company R has an AR collection pattern of 8% in the current month, 47% in the first month, 30% in the second month, 10% in the third month, and 5% in the fourth month. If AR for July is $598,000, what amount of cash do they expect to collect in October?

$59,800

Using the info below what is the Days Payables (DP)? Annual Revenue $158,000.00 Annual Cost of Goods Sold $92,400.00 Cash Flow from Operations $850.00 Ending Inventory $23,600.00 Ending Accounts Receivable $19,300.00 Ending Accounts Payable $16,950.00

$66.96

Amalgamated Binding Consolidators takes 20 days to convert its raw materials to finished goods, 5 days to sell it, and 15 days to collect its credit sales. What is the company s days receivable period?

15 days

The Glass Steegal Act was basically repealed through which act of Congress?

Allowing Financial Holding Companies

Which is NOT a source of cash for a company?

An increase in Account Receivables

The type of underwriting that is most risky to the company putting out the public offering

Best efforts underwriting

The Quantitative Easing done by the Federal Reserve duirng the great recession used which monetary policy tool?

Buying the bonds by the Federal Open Market Operations of the Fed

All of these are attributes of Jumbo CDs except

CDs must be held to maturity

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

Cash before delivery

An airline wants to lock in the price of the jet fuel it needs to purchase to satisfy the peak in-season demand for travel. The airline wants to manage its exposure to fluctuations in fuel prices. What type of exposure is this?

Commodity

In evaluating alternative capital investments, a company should consider qualitative factors such as:

Corporate strategy

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?

Debt to tangible net worth

A put option on a company s stock has an exercise price of $20. On the delivery date, the stock is trading at $24 per share. What should the investor who has paid $2 for the option do?

Not exercise the option and lost $2

When utilizing a Factor to sell your receivables, all could be true except

They must be sold without recourse back to the selling company

When it comes to Audit Opinions, firms would like

Unqualified

The Monetary Control Act of 1980

Reducing float int eh payment system

The MOST common way that companies structure their operations is a

cost center

Examples of fixed assets include which of the following? I. Inventory II. Treasury bills III. Forklift IV. Goodwill

III only

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

They usually reflect accounting rather than economic values

An increasing number of multinational companies have adopted formal multilateral netting systems for which of the following reasons?

To facilitate management of foreign exchange transactions

Financing decisions in a budget are used to construct all of the following pro forma financial statement components EXCEPT

Inventory

Breaking the buck referee to

Not permitting MMF to go below $1 NAV in most circumstances

In order to be defined as independent, a corporate director:

cannot have a material relationship with the company

Company Q has average daily credit sales of $15,875.00. The daily cash sales are $8,750.00. The AR ending balance for June 30 is $387,500.00. What is the average days sales outstanding for Company Q?

24.41

Using the info below what is the Days Receivables (DR)? Annual Revenue $158,000.00 Annual Cost of Goods Sold $92,400.00 Cash Flow from Operations $850.00 Ending Inventory $23,600.00 Ending Accounts Receivable $19,300.00 Ending Accounts Payable $16,950.00

$44.59

Using the info below what is the Days Inventory (DI)? Annual Revenue $158,000.00 Annual Cost of Goods Sold $92,400.00 Cash Flow from Operations $850.00 Ending Inventory $23,600.00 Ending Accounts Receivable $19,300.00 Ending Accounts Payable $16,950.00

$93.23

What is the service a commercial bank traditionally does NOT make money from?

Underwriting security issued to the public

A manufacturing company is working to improve its cash conversion cycle. Factory production has increased over the last year to increase inventory levels. They have an inventory turnover of 3.1 and asset turnover of 5.0. The company has a days payable of 30 and a days receivable of 60. It has started enforcing its net 30 terms and placed customers with balances outstanding more than 45 days on credit hold. As a result, the company collected receivables quicker but it suffered a 10% loss in sales. What can the company do to reduce its cash conversion cycle?

Extend payables deferral period

The treasury manager of a chain of clothing stores wants to develop a medium-term forecast. Management plans to open two new stores, and anticipates same-store sales to increase by 15%. Which of the following items can be predicted with the highest degree of certainty?

Fixed bond interest payment

Company XYZ is a manufacturer of industrial equipment and has enjoyed a large percentage increase in profits from a small increase in revenues. Sales recently plummeted resulting in steep decline in profitability. Which of the following BEST describes the cost structure of the company?

High operating leverage

Which of the following are important uses of variance analysis in comparing actual cash flows with projected cash flows? I. Identifying unanticipated changes in inventory II. Enhancing short-term investment income III. Validating a capital budget IV. Identifying delays in accounts receivable collections

I and IV only

Examples of traditional factors used in making a credit decision include which of the following? I. Capacity II. Capital III. Compliance IV. Character

I, II, and IV only

ABC Company offers a discount of 2/10, net 30 to its customers. ABC factored its accounts receivables with an outside vendor, under a with recourse arrangement. What impact might this have on the company?

Improve cash conversion cycle

A company is based in the United States and has an operating subsidiary in Germany. With a stable U.S. dollar and a depreciating euro, the company s cash manager may elect to:

Start leading receivables from the German subsidiary

A company enters into a cash flow hedge to offset fluctuations in the value of foreign currency transactions occurring in two years. How should the company record the gains and/or losses on the cash flow hedge in the current year?

The hedged gains and losses are reported in comprehensive income

An international company would establish a re-invoicing center for which of the following reasons?

To manage the foreign exchange exposure of its foreign subsidiaries

A company is interested in lowering its overall banking costs, managing netting, pooling, re-invoicing, and centralizing FX exposure at headquarters. Which of the following options will accomplish this?

In-house banking

MCA, Inc. upgraded the treasury workstation that had been in place for two years and used data from that 24-month period to develop a new short-term forecast. A trend factor was applied to controlled disbursements of 97% on a month-by-month basis and the variance to actual disbursements is less than 1%. Which of the following model validation techniques was utilized?

In-sample validation

A retail brokerage firm is MOST like which one of the following types of financial institutions?

Investment banks

A daily short-term forecast and variance analysis for LMN, Inc. is updated with relevant trends and actual data every Monday. Upon review, the treasurer assessed that sales were higher than forecasted, inventory was up and yields being earned on excess cash were lower. The MOST important reason for this cash forecast process is:

Liquidity management

What does a company with a restrictive current asset investment strategy typically have?

Low accounts receivable balances

Company ABC is a restaurant chain that has enjoyed a surge in customers dining with not much of a profitability increase in the last couple of years. Following a bad restaurant review, customer traffic deteriorated with not much change in profitability. Which of the following BEST describes the cost structure of the company?

Low operating leverage

The matching principle in regards to accrual accounting is

Recognize the expenses incurred to generate earned revenues

An analyst for a landscaping company wants to adjust her cash-flow forecast to account for the seasonality of outflows. How can this be accomplished?

Regression analysis

A company is experiencing the following long-term trend on a month-over-month basis: Sales are increasing by $100,000, a 15% increase. Accounts receivable are increasing by $5,000, a 1% increase. Accounts payable are increasing by $20,000, a 4% increase. Labor expenses are increasing by $40,000, a 3% increase. With all other income, expenses, long-term assets and liabilities remaining stable, this trend would MOST LIKELY prompt what action by the company?

Repaying short-term debt

EML Inc., which has $600 million in outstanding debt, is preparing to issue commercial paper in excess of $100 million within the next six months. The new assistant treasurer has recently spent time getting to know the issuing and paying agent, the rating agency analyst, and the legal counsel, and has been following the financial markets. What is this an example of?

external collaboration