Treasury Terminology (1)
What are two benefits of using a ZBA account?
1. allows an org. to concentrate more $ in a master account so that more interest can be earned, often at a higher rate 2. spending control mechanism, use to fund debit cards so that the exact amount needed can be provided
Automated Clearinghouse Transactions
2-3 business days to complete; very low cost or free; typically more secure as they must go through clearinghouses
Kahuna Boards Co. has just experienced a very profitable year and wants to share the success with its shareholders. In order to pay dividends, a sequence of events must occur. Which of the following chronological sequence of events is correct? 1. Stock is sold without the upcoming dividend attached. 2. Dividend is paid. 3. Board of directors announces the dividend. 4. Holders of record are specified A. 3, 4, 1, 2 B. 3, 4, 2, 1 C. 4, 3, 2, 1 D. 4, 3, 1, 2
A. 3, 4, 1, 2
If a company has $126M in debt at an average cost of 7% and $234M in equity at a cost of 11%, what is its weighted average cost of capital, assuming a marginal tax rate % and a risk-adjusted rate of 13%? A. 8.7% B. 9.6% C. 10.0% D. 10.9%
A. 8.7%
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
A. sinking fund
The KEY decision in using CCD+ and CTX formats for B2B payments is: A. whether to keep the payment and remittance info 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
A. whether to keep the payment and remit info together or separate
A cash manager has determined that the break-even amount for justifying a wire transfer over an ACH for concentration of funds is $145,000. Using a wire instead of an ACH gives the company use of the funds two days earlier to make overnight investments. Based on a wire transfer cost of $10 and an ACH transaction cost of $0.70, what is the company's overnight investment interest rate based on a 365-day year basis? A. 0.95% B. 1.17% C. 2.34% D. 2.57%
B. 1.17%
Which of the following is subject to transaction exposure? A. A US company's foreign subsidiary in Japan has a receivable denominated in Yen B. A Japanese company's foreign subsidiary in the US has a receivable denominated in Yen C. A US company's foreign subsidiary in Japan has a payable denominated in Yen D. A Japanese company's foreign subsidiary in the US has a payable denominated in dollars
B. A Japanese company's foreign subsidiary in the US has a receivable denominated in Yen
A foreign company could raise capital in the US using an: A. ASP B. ADR C. ARC D. AVS
B. ADR (American depositary receipt)
The treasury management Dept of a co. hires a consulting firm to provide research on how other companies in the industry have structured their operations. This is an example of which practice? A. Outsourcing B. Benchmarking C. Re-engineering D. Restructuring
B. Benchmarking
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
B. Cash before delivery
Netting is used by which of the following as a cross-border payment technique? A. European giro providers B. Foreign subsidiaries of a company C. Counterparts in a letter of credit transaction D. TARGET participants
B. Foreign subsidiaries of a company
Account analysis statements should be examined for which of the following reasons: I. To verify volumes processed II. To determine daily cash shortages III. To verify the accuracy of bank service charges IV. To ensure that company-initiated transactions have occurred. A. I and IV only B. I and III only C. II and III only D. II and IV only
B. I and III only
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 ST investment income III. Validating a capital budget IV. Identifying delays in AR collections A. I and II only B. I and IV only C. II and IV only D. I, II, III, and IV
B. I and IV only
When a project has an initial cash outflow with cash inflows in subsequent years, what decision model is most applicable to use to evaluate the adequacy of the project? A. Monte Carlo B. Net present value C. Payback period D. Profitability index
B. Net present value
Which of the following would be expected to happen on the ex-dividend date? A. The stock is sold with the dividend attached B. The stock price drops C. The stock's volume increases D. The stock's dividend is paid
B. The stock price drops
A company is starting a project to redesign its cash management systems. What would be an important tool in this effort? A. ERP software B. Treasury operations manual C. Cash application D. Treasury workstation
B. Treasury operations manual
Which one of the following ties a user's private key to a public key? A. a digital signature B. a digital certificate C. a digitized signature D. a digital token
B. a digital certificate
In terms of capital structure, lease financing normally has the same effect as: A. investing B. borrowing C. capitalizing D. lending
B. borrowing
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
B. debt to tangible net worth
An optimal concentration system minimizes all of the following EXCEPT: A. administrative costs B. disbursement float C. excess balances D. transfer costs
B. disbursement float
In developing an operating budget, the first and MOST critical step is? A. get management approval B. generate a sales budget C. establish cost allocations D. determine capital structure
B. generate a sales budget
Which of the following is NOT a drawback to using ROI as a performance measure? A. it may be misleading when cash flows are not evenly distributed over time B. it does not consider the profit generated by a project C. It does not include a charge for cost of capital D. it may lead to rejection of a positive NPV project
B. it does not consider the profit generated by a project
During the 1970s, many companies instituted dividend reinvestment plans (DRIPS). There are many benefits of this plan. What is the one negative aspect? A. Reduces the expense of shareholder returns B. Leads to an increase in the number of small shareholders C. Does not allow automatic investment of dividends D. Leads to a reduction in the number of small shareholders
B. leads to an increase in the number of small shareholders
For a defined benefit plan, A. plan assets equal plan liabilities B. plan assets can be less than plan liabilities C. plan assets are greater than plan equity D. plan assets are always equal to plan equity
B. plan assets can be less than plan liabilities
A company transmits a payment file of ACH and Fedwire vendor payments to its financial institution to execute. Which article of the Uniform Commercial Code governs these payments? A. Article 3 B. Article 4 C. Article 4A D. Article 5
C. Article 4A
A company sells products to its customers on credit, generating A/R. The company uses accrual accounting. Once the company collects good funds from its customers, what's the impact on the financial statements of the company? A. Cash balance is not affected, and income is increased B. Cash balance is increased, and income is decreased C. Cash balance is increased, and income is not affected D. Cash balance is increased, and income is increased
C. Cash balance is increased, and income is not affected
A co. with constant earnings and excess cash is considering a significant stock repurchase plan. Which of the following is MOST LIKELY to occur? A. EPS will increase, and the number of shares outstanding will stay constant B. EPS will decrease, and the number of shares outstanding will increase C. EPS will increase, and the number of shares outstanding will decrease D. EPS will decrease, and the number of shares outstanding will stay constant
C. EPS will increase and the number of shares outstanding will decrease
On which exchange is a company's stock traded over-the-counter? A. AMEX B. FINRA C. NASDAQ D. NYSE
C. NASDAQ
A company has a line of credit and a bond trustee agreement with a bank. To prevent a decline in the company's bond rating from having a negative impact on the company's line of credit, the bank should have which of the following in place: A. Code of conduct B. Confidentiality agreement C. Notional barrier D. Risk profile
C. Notional barrier
The Governmental Accounting Standards Board (GASB) is the authoritative standard-setting body for which of the following? A. Private universities B. Healthcare orgs C. Public works agencies D. Publicly traded companies
C. Public works agencies
In which of the following instances does the clientele effect come into play? A. When a company announces its earnings forecast B. When a company submits its 10Q to the SEC C. When a company declares a dividend D. When a company increases its sales
C. When a company declares a dividend
Which of the following is subject to translation exposure? A. A German company with a subsidiary in Spain B. A Spanish company with revenues in euros C. A Japanese subsidiary in the US with USD liabilities D. A UK company that exports goods to the US
C. a Japanese sub in the US with USD liabilities
Convertible securities consist of preferred stock and: A. treasury stock B. common stock C. bonds D. tracking stock
C. bonds
Future treasury operations will be affected MOST significantly by consolidation of which of the following? A. competitors B. subsidiaries C. commercial banking industry D. procurement cards
C. commercial banking industry
In evaluating capital investments, a company should consider qualitative factors such as: A. projected cash flows B. estimated economic returns C. corporate strategy D. estimated costs
C. corporate strategy
A U.S. exporter sells goods to a foreign buyer in USD and wants to guarantee that payment is made by the buyer. The exporter would most likely require a(n): A. bankers' acceptance B. documentary collection C. letter of credit D. open account
C. letter of credit
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
C. low long-term debt to capital ratio
The accounting requirement that requires that a product's selling costs be recorded in the same period as the product's revenue is recorded, regardless of when cash is paid, is an example of: A. full disclosure principle B. historical cost principle C. matching principle D. revenue recognition principle
C. matching principle
Regarding dividends, on which of the following dates would a company's current assets be reduced? A. Declaration date B. Ex-dividend date C. Payment date D. Record date
C. payment date
A public corporation may value a defined contribution plan highly because it: A. allows the corporation to capture plan investment surpluses B. allows proxy voting in favor of management C. shifts investment shortfall risk to the employees D. defines allowed investments within the plan
C. shifts investment shortfall risk to the employees
A company is based in the U.S. and has an operating subsidiary based in Germany. With a stable U.S. dollar and a depreciating euro, the company's cash manager may elect to: A. pool excess funds in the U.S. to offset German deficits B. implement a dollar-based multilateral netting system C. start leading receivables from the German subsidiary D. establish a multi currency account in the U.S.
C. start leading receivables from the German subsidiary
At the end of the year, ABC Co.'s actual revenue is $85M versus budget revenue of $90M. Actual operating expenses are $20M vs. budget operating expenses of $22M. Budget variance analysis would indicate a(n): A. favorable revenue variance and an unfavorable operating expenses variance B. favorable revenue variance and a favorable operating expenses variable C. unfavorable revenue variance and a favorable operating expenses variance D. unfavorable revenue variance and an unfavorable operating expenses variance
C. unfavorable revenue variance an a favorable operating expenses variance
A public company's risk profile is currently in balance. The management's mission statement is to minimize stock devaluation. However, it is forecasting a need for working capital in the short-term. Which of the following solutions would BEST assist management in accomplishing its mission? A. Redeem outstanding shares B. Issue additional shares C. Use debt financing D. Pay out dividends
C. use debt financing
The fixed costs to make widgets are estimated to be $54,000. The benefit (sales) of a widget estimated to be $6.78 per widget, and the variable costs are estimated at $4.48 per unit. What is the estimated break-even point in units for the maker of the widgets? A. 4,796 B. 7,965 C. 12,054 D. 23,478
D. 23,478
Co. XYZ is not sure which direction interest rates are headed. Which of the following would be MOST suitable? A. An interest rate cap B. An interest rate floor C. An interest rate swap D. An interest rate collar
D. An interest rate collar
What kind of budget forecasts the cost for investing activities? A. Operating budget B. Sales budget C. Maintenance budget D. Capital budget
D. Capital budget
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
D. Currency risk
ABC Company is a national retail company and uses XYZ Bank for its collections and payroll services. XYZ has recently experienced financial problems; what's the greatest risk to ABC Company? A. Damage to their working relationship B. Deterioration of service quality C. Increase in Service Fees D. Loss of assets
D. Loss of assets
XYZ Co. 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
D. Paid-on-production
ASC Topic 815 (FAS 133) is applicable when accounting for which of the following: A. Gain on an equity investment B. Purchase of a bond investment C. Market value of collateral D. Purchase of a forward
D. Purchase of a forward
In which of the following international cash management methods is title for goods transferred for intracompany sales? A. Pooling B. Internal factoring C. multilateral netting D. Re-invoicing
D. Re-invoicing
When estimating the cost of capital, which of the following financial resources would probably NOT be included in the cost of capital calculation? A. Common stock B. LT debt C. Preferred stock D. ST debt
D. ST debt
A deck furniture supply company maintains a large inventory during the summer sales season. One of the PRIMARY benefits of this approach is that the company avoids which of the following costs? A. Holding B. Opportunity C. Order D. Stock-Out
D. Stock-Out
A bank issues a letter of credit and receives a request for payment under the LC. The buyer notifies the issuing bank not to make payment because there is a dispute over the quality of the merchandise. However, the documents received fully comply with the terms of the LC. Which of the following statements is true? A. The buyer may immediately return the merchandise and cancel the LC B. The bank may delay payment until reimbursed by the buyer C. The bank may delay payment, provided the seller is notified of the dispute within three business days D. The bank must make payment and is entitled to immediate reimbursement from the buyer
D. The bank must make payment and is entitled to immediate reimbursement from the buyer
Which of the following would be MOST suitable for a risk-averse electronics manufacturer that uses copper in many of its components? A. a put option on copper futures B. a shot position in copper futures C. a floor option on copper futures D. a costless collar using options on copper futures
D. a costless collar using options on copper futures
Optimal dividend policy is one that does all of the following EXCEPT: A. maintain adequate RE for future growth B. maximize shareholder value C. distribute corporate income to its investors D. balance tax shield benefits against agency costs
D. balance tax shield benefits against agency costs
A distribution business has used several bank loans to finance its expansion plans. After a fire destroyed the company's facility and inventory, it went out of business due to the loss of revenue during the month it was closed. What type of insurance coverage should the company have had to prevent its demise? A. cost reimbursement B. property C. general liability D. business interruption
D. business interruption
The Federal Reserve can increase the money supply by: A. increasing the reserve requirement B. increasing the discount rate C. selling government securities D. buying government securities
D. buying government securities
In a typical swap transaction, two parties agree to exchange: A. notional principal amounts B. amortization schedules C. maturity dates of obligations D. cash flows at future points in time
D. cash flows at future points in time
The assistant treasurer of a company uses variance analysis comparing actual cash flows with projected cash flows and finds actual is less than forecasted. Which of the following would cause this variance? A. Pro Forma income statement B. Weighted average cost of capital C. Capital budget forecast D. Delayed AR collection
D. delayed AR collection
With respect to the SOX act, a co. may avoid additional reporting requirements by: A. issuing shares in an IPO B. providing an SSAE 16 C. redeeming bond issues D. delisting its securities
D. delisting its securities
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
D. determining the mix of debt versus equity
The goal of a successful investor relations program is to ensure: A. achievement of the company's EPS goal B. accurate preparation of financial statements C. on-time filing of reports D. effective two-way communication between a company, the financial community, and other constituencies
D. effective two-way communication between a company, the financial community, and other constituencies
Which of the following BEST describes an advantage of a company going public? A. increased management control B. increased public disclosures C. increased management flexibility D. increased liquidity
D. increased liquidity
Financing decisions in a budget are used to construct all of the following pro format financial statement components EXCEPT: A. debt B. interest expense C. shareholder's equity D. inventory
D. inventory
One of the advantages of raising capital through public offerings is that: A. it reduces fluctuations in the price of capital B. it reduces the costs of managing reporting and disclosure C. large amounts of debt and equity can be raised at the risk-free rate D. large amounts of debt and equity can be raised at prevailing rates
D. large amounts of debt and equity can be raised at prevailing rates
What must be measured and monitored to ensure that a company has adequate liquidity? A. net receivables B. stock price C. short-term borrowing obligations D. net working capital
D. net working capital
A large mature company with limited growth opportunities (positive NPV projects) achieved abnormally high profits this year. After paying mandatory principal, interest, and taxes, the company has $200 million in surplus cash on hand. Assuming its investor base is most concerned with capital appreciation, which of the following is the BEST option for the company? A. declare a special dividend B. reinvest cash into the company C. declare a cash dividend D. repurchase shares of the outstanding stock
D. repurchase shares of the outstanding stock
The stock of a manufacturing company is priced so that its expected rate of return is below its required rate, as calculated by the CAPM. Which of the following will occur in an efficient capital market? A. Buying pressure for the firm's stock will drive the price up. B. Buying pressure for the firm's stock will drive the price down C. Selling pressure for the firm's stock will drive the price up D. Selling pressure for the firm's stock will drive the price down
D. selling pressure for the firm's stock will drive the price down
A co. hires an investment firm to fully underwrite a new stock issuance. Which of the parties carries the MOST risk? A. The public B. The company C. The company's bond holders D. The investment firm
D. the investment firm
Ledger Balance VS. Available Balance
Ledger balance= updated at the end of the business day after all transactions are approved and processed, therefore the ledger balance does not include real-time transaction updates. Available Balance= aggregate funds available for withdrawal at any given point in time
LIBOR
London Interbank Offered Rate; benchmark interest rate at which global banks lend one another in the international interbank market for short term loans -rate is calculated each day by the intercontinental exchange -exchange asks major global banks how much they would charge other banks for short-term loans -rate is then calculated using a standardized, transaction-based, data-driven, layered method
What does ZBA stand for, and how does it work?
zero-balance account; when funds are needed in the ZBA, the exact amount of $ required is automatically transferred from a master account. Deposits are also swept into the master account daily.
Co. A is a large public co. with annual revenues of $1.2B and high fixed costs. Its stock is listed on the NYSE. Co. B is a mid-sized co. with annual revenue of $100M and low fixed costs. Its stock is listed on the NASDAQ. Which of the following statements is MOST LIKELY to be true when comparing Co. A and Co. B? A. A has greater reporting requirements and more marketable than B B. A has greater reporting requirements and is less marketable than B C. B has greater reporting requirements and is more marketable than A D. B has greater reporting requirements and is less marketable than A
A. Co. A has greater reporting requirements and is more marketable than Co. B
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
A. Equity method investments accounting
A call option for a company has an exercise price of $50. The stock is currently trading at $60. At maturity, what should an investor who paid $3 for the option do? A. Exercise the option and gain $7. B. Exercise the option and gain $10 C. Not exercise the option and lose $3 D. Not exercise the option and lose $13
A. Exercise the option and gain $7
Co. A regularly modifies its capital structure by repurchasing stock. Which one of the following is a true statement? A. investors may feel management is manipulating the stock price B. stock repurchases are not an attractive alternative to dividend payments C. partial disclosures to the SEC is required for repurchases D. stock repurchases do not offer tax deferral advantages over dividends
A. Investors may feel that management is manipulating the share price
Which of the following instruments simplifies the paper work connected with loans that have multiple advance features? A. Master note B. Banker's acceptance C. Indenture agreement D. Note purchase
A. Master note
A put option on a company's stock has an exercise price of $20. On the delivery date, the stock is trading at $24. What should the investor who paid $2 per option do? A. Not exercise the option and lose $2 B. Not exercise the option and lose $6 C. Exercise the option and gain $2 D. Exercise the option and gain $4
A. Not exercise the option and lose $2
Which of the following is a characteristic of giro systems in Europe? A. They operate through the postal system B. They are primarily used for company-to-company payments C. They do not replace checks for the payment of bills D. They do not allow the use of direct debits and credits
A. They operate through the postal system
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
A. an equity warrant
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
A. collar
A company plans to issue additional equity within the next 12 months but needs to issue debt at a low rate now. Which of the following instruments would BEST meet this objective? A. convertible bonds B. Private placement issue C. Preferred stock D. Subordinated debentures
A. convertible bonds
The MOST common way that companies structure their treasury operations is as a: A. cost center B. profit center C. shared service center D. in-house bank
A. cost center
One reason for using a sale and lease-back arrangement in lease financing is to: A. create an infusion of cash into the company B. benefit from tax advantages from depreciation C. account for income or costs in one period D. eliminate off-balance sheet debt
A. create an infusion of cash into the company
Which of the following is MOST likely to have a significant impact on the financial condition of an organization? A. defined benefit pension plan B. defined contribution pension plan C. 401k plans D. tax-deferred annuities
A. defined benefit pension plan
An investor concerned about taxes on dividend distributions would MOST LIKELY purchase stock on which of the following dates? A. ex-dividend date B. record date C. declaration date D. payment date
A. ex-dividend date
XYZ Co. is considering selling treasury stock but is concerned about the amount of capital it will raise given the current high volatility of the stock market. What is the BEST strategy a firm can employ to reduce its uncertainty? A. Hire an investment banker to underwrite the stock in a full underwriting basis B. Hire an investment banker to issue the stock using a master registration statement C. Hire an investment banker to underwrite the stock with no flotation costs D. Hire an investment banker to underwrite the stock on a best efforts basis
A. hire an investment banker to underwrite the stock in a full underwriting basis
Which of the following is not a short-term cash forecasting technique? A. income statement forecast B. distribution forecast C. receipts and disbursements forecast D. AR balance pattern forecast
A. income statement forecast
What is the most appropriate rate used as the discount in calculating NPV? A. Marginal cost of capital B. IRR C. Cost of debt D. Internal transfer rate
A. marginal cost of capital
Company XYZ is now required to make electronic payments to its suppliers. To prevent an increase in costs, the company should: A. negotiate a change in payment timing with its suppliers B. institute a just-in-time inventory system C. negotiate a change in cash disbursement with its concentration bank D. institue a notified RSA system for its inventory
A. negotiate a change in payment timing with its suppliers
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
A. preemptive right
When a short-term loan is paid with a lump sum payment and the payment includes both interest and principal the loan is often referred to as a: A. single payment note B. material payment note C. balloon payment note D. commercial note
A. single payment note
In-house banking
allows organizations to transfer funds throughout their subsidiaries as necessary; create cash for entities whose capital is largely illiquid and is waiting for invoices or returns; IHB could also qualify for greater lines of CR than a stand-alone subsidiary; could lead to improved access to cash
Float time
amount of time between when an individual writes and submits a check as payment and when the individual's bank receives the instruction to move the funds from the account; most clear within a day
Borrowing Base
the amount of money a lender will loan a company based on the value of the collateral the company pledges; usually determined by a method called margining, in which the lender determines a discount factor that is multiplied by the value of the collateral
From a buyer's perspective, which of the following types of float would be eliminated if checks were replaced with electronic payment methods? A. collection B. invoicing C. disbursement D. lockbox
c. disbursement
Wire Transfer
immediately transfer funds between accounts; typically charge a fee between $15-$35
Letter of Credit
issuing bank pays the beneficiary, or any bank nominated by the beneficiary; if a letter of credit is transferable, the beneficiary may assign another entity, such as a corporate parent or a third party, the right to draw -banks typically require a pledge of securities or cash as collateral for issuing a letter of credit -banks also collect a fee for service, typically a very small % of the size of the letter of credit