Treasurey Manament - Final Quiz Compilation

Establishing the authority to open bank accounts is the responsibility of:

the board of directors

"A merchant presents 2 different batches of credit card transactions for processing, each batch has the same dollar value and number of transactions, but the fees are different. Which of the following explains why? "

type of card accepted

Which of the following is a source of short-term financing?

factoring of accounts receivable

Company ABC experienced a loss in the past when an employee in the treasury department was able to transfer $1.5 million to a personal account offshore. The company is working with a security agent to prevent this from happening in the future. ABC also accepts a large number of checks as payment. The agent has suggested upgrades to ABC s payment process. What step should be taken to help mitigate this type of risk in the future?

implement dual approval

A $100,000 T-bill currently sells for $98,600 and matures in 90 days. What is the discount rate for this investment?

5.60%

"A $100,000 T-bill currently sells for $98,600 and matures in 90 days. What is the 365 day basis yield for this investment? "

5.76%

"The Company J portfolio consists of two stocks, 65% of Stock A with a return of 7.63% and 35% of Stock B with a return of 3.89%. What is the Company J portfolio return? "

6.32%

"The risk-free rate of return is 2.15% and the historical stock market average rate of return is 6%. If Company M has a beta of 1.36, what is their required rate of return for capital asset pricing? "

7.39%

The yield curve is inverted. A creditworthy firm considering alternative debt maturities would MOST LIKELY:

Obtain long-term fixed interest rate debt

Securities sold by companies in an initial public offering (IPO) are:

Public securities sold by a private company for the first time

"An equity management company s Chief Financial Officer and Treasurer are evaluating their corporate investments and decide that they need to diversify their stock holdings to include personal care products companies. Based on their analysis, publicly-traded companies A and B stand out as choices. Company A has a beta value of 0.65 while company B has a beta value of 1.10. They decide to invest in Company A. What objective of their investment policy did they use to make their decision? "

Safety

"The stock of a manufacturing company is priced so that its expected rate of return is below its required rate, as calculated by the Capital Asset Pricing Model (CAPM). Which of the following will occur in an efficient capital market? "

Selling pressure for the firm s stock will drive the price down

The goal of a successful investor relations program is to ensure:

Effective two-way communication between a company, the financial community, and other constituencies

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

Equity method investments accounting

What is the earnings credit the company is receiving for this month?

$457.71

Which of the following is a tool that companies use to obtain a quantitative rating of a financial institution s level of service?

score card

"Making payments through electronic payments networks can be a part of a treasury management system s functionality, but it is subject to numerous constraints. Which of the following is a true statement of those constraints? "

"Collecting payment-routing details, and populating these into the software, is a significant task"

Company A has $1,375,000 that it plans to invest for three years at an interest rate of 4%, with all interest paid at maturity. How much interest will the company receive at the end of the third year?

$171,688 calculator(calc FV): n = 3 I/Y = 4 PV = $1,375,000 PMT = 0 FV = ???? $1,546,688 $1,546,688 - $1,375,000 = $171,688

Company T pays $12.00 for a wire and $2.00 for an ACH transaction. They receive a wire one day sooner than they do an ACH and they earn 1.75% on the funds. What is the break-even amount for a wire instead of an ACH?

$208,571.43

"Earnings Credit calculation: Assumptions Average ledger balance $1,500,000 Deposit Float $250,000 Reserve Requirement 10% Earnings Credit Rate 45 bps Service Charges for the month $12,500 Days in the Month 30. What is the earnings credit the company is receiving for this month? "

$416.10

Treasury policies should be approved by the:

board of directors

Convertible securities consist of preferred stock and:

bond

"A company can pay their supplier by check or by electronic transfer. If the difference between the value date of the payment methods is 4 days from the company s perspective, what discount should the supplier offer them to get the company to pay on the same day as they did when they paid by check (rounded to the nearest 100th percent)? Assume no difference in the cost of the payment method, an opportunity cost of 8%, and float neutrality. "

0.09%

Company S wants to issue $25,000,000 of commercial paper at a discount of 35 bps and a maturity of 27 days. The dealer fee is 10 bps annually and the bank assesses a backup L/C fee of 20 bps. What is the approximate annual interest rate the company pays for this issue of commercial paper?

0.66%

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 "

3, 4, 1, 2 - board of directors announces the dividend ---> holders of record are specified ---> stock is sold without the upcoming dividend attached ---> dividend is paid

Company R has a $50 million line of credit with a 5% compensating balance. They have outstanding borrowings of $37 million. The fee on the unused portion of the line of credit is 25 bps and the interest rate on the borrowings is LIBOR of 28 bps plus 3.25%. What is the annual interest rate for the line of credit?

3.81%

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 pounds, issued in the U.K. by a U.S. 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 euros, issued in a European market by a U.S. company"

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

Which of the following contributes MOST to the marketability of a security? A. An investment-grade rating B. An irrevocable letter of credit guarantee C. A return at or above the yield curve "D. A large, active secondary market"

A large, active secondary market

"Banks often control information flow, records and assets, therefore it is critical that banks have: "

Backup systems and disaster recovery procedures

A U.S.-based electronics company that buys components from one of its foreign subsidiaries at a price above market is likely to:

Be sheltering profits in a low-tax country

Company XYZ is now required to make electronic payments by its suppliers. To prevent an increase in costs, the company should: "

Negotiate a change in payment timing with its suppliers

One reason for using a sale and lease-back arrangement in lease financing is to:

Create an infusion of cash into the company

Which of the following is NOT true for both bankers acceptances and trade acceptances? A. They are both used to finance the shipment of goods B. They both may be sold to an investor at a discount prior to maturity C. They are both less expensive forms of financing than loans D. They both transfer the buyer s credit risk to a third party

D. They both transfer the buyer s credit risk to a third party

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

Developed a contingency funding plan

"Two months after a government overthrow, the new Minister of Industry and Culture took over the country s largest steel company and compensated the owners at 50% of book value. What is the government s action called? "

Expropriation

Today s modern cash management systems would include which of the following?

Full integration to ERP systems

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?

Grant the investors preemptive rights to the new issue

Which two of the following are optimal uses for short-term excess cash? I. Pay down credit lines II. Make overnight investments III. Repurchase stock IV. Make capital expenditures

I and II

Which of the following can be considered key responsibilities of daily cash management? I. Overseeing compensation for bank services II. Management of short-term borrowing and investing III. Projecting future cash shortages and surpluses

I, II, and III

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

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

II and III only

"The CFO asks the treasurer to create a new collections and concentration policy for their company. Following implementation of the policy, the company finds that reporting of receivables values is taking 10% longer, with no improvement in the company s cash flow or liquidity. What step in developing the policy could have been executed to reduce this risk? "

Identify issues and conduct analysis

Which of the following BEST describes an advantage of a company going public?

Increased liquidity

Company A regularly modifies its capital structure by repurchasing stock. Which one of the following is a true statement?

Investors may feel that management is manipulating the stock price

"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 has asked its marketing, payroll and sales teams to collaborate in finding a solution that could augment its customer base, reduce payroll cost and increase sales. The solution has to be market ready. Which of the following will serve all 3 purposes? "

Stored value card

A U.S. company has a secured committed line of credit of $5.5 million and has an available balance of $4 million. The company successfully transmitted a $5.5 million wire transfer instruction out to the bank via SWIFT. The bank contacted the company and informed it that the wire transfer would not be processed. What is the MOST LIKELY reason the bank gave the company?

The bank imposed a guidance line of credit on the account

Which of the following is true when a company purchases goods using trade credit from suppliers?

The buyer incurs no added cost if it pays on time

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

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

Buying a security with the intent of selling it prior to its maturity date to increase the return is an example of:

active investment strategy

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

cash before delivery

A company plans to issue additional equity within the next 12 months but needs to issue debt at a low interest rate now. Which of the following instruments would BEST meet this objective?

convertible bonds

"Company XYZ is conservative when investing in their short-term portfolio. XYZ is looking to add the following money market instruments in their own country: a reverse re-purchase agreement, a floating-rate note, and a negotiable certificate of deposit. What types of investment risks are associated with these instruments? "

credit and liquidity risk

Loss exposures related to treasury management may include which of the following?

deterioration of investment principal

"Due to a loss of proprietary information held for clients, ABC Company has been named in a billion dollar lawsuit. It was determined that the loss of information was due to a breach in its computer system firewalls by outside parties. When the lawsuit became public, the company experienced a steep drop in its stock price. This scenario is an example of what kind of risk? "

external theft/fraud

"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

"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: "

inventory levels

"Company ABC needs external capital to finance a new product line. Its operating leverage is high, and its revolving credit agreement contains a ratings trigger. What will Company ABC MOST LIKELY do to finance its new product line? "

issue common stock

Which of the following is a KEY operational advantage of short-term debt?

it can be arranged quickly and easily

"A cash manager at a retailer forecasts a positive collected cash position for the end of the current day. The company has an overdraft facility at 10%, a separate investment account earning 8% before taxes, an earnings credit rate of 8% and an outstanding single payment note at 9.5% maturing in 1 week. This month s bank service fees are expected to exceed the earnings credit. Which of the following intra-day options would be the MOST economically positive for the company? "

leave the funds in the account

Some treasury management systems are capable of initiating investment purchases and loan drawdowns automatically. The automating of these transactions is related to which of the following treasury management functions?

liquidity management

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

low accounts receivable balances

"XYZ Holdco has multiple credit facilities with a bank under a borrowing agreement that includes certain covenants. A fire has destroyed the manufacturing plant owned by ABC, one of the XYZ subsidiaries that is part of the credit facilities. All loans, including the ABC loan, are up to date and being repaid as required. However, after the fire, the bank notified XYZ that it was in default. Which one of the following covenants is MOST LIKELY a term of the borrowing agreement? "

material adverse change

Money market funds are able to obtain very competitive trading terms because:

of the economies of scale

A company has grown quickly in the euro zone market. It wants to maximize its excess cash. Which would be the BEST method of concentrating funds?

physical pooling

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

preemptive right

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

reduce cash processing costs

"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? "

repurchase shares of outstanding stock

" After a recent review of its insurance policies, a petroleum products company determines it needs to re-evaluate its risk exposure to potentially reduce its insurance premiums. The company has operated in two locations for 20 years but only produces and stores petroleum at one location. In doing so, the risk manager determines the following exposures: The number of employee workers compensation claims due to injuries while loading trucks has increased 25% in the past 12 months The primary tank used for petroleum storage is 13 years old and standard life of tanks of this model is 20 years There is only one road into the current petroleum storage facility Given the above information, if the risk manager constructs a second road into the petroleum storage facility, what risk management strategy is being used?"

risk mitigation

"Senior management at ABC Company plans to make a large capital expenditure to bolster its infrastructure exactly one year from now. Their primary concern is to preserve the current capital position until the expected cash outlay. The majority of the cash at ABC Company is held in treasury notes, but management would like to also invest some of the money into corporate bonds and money market funds. Which investment objective BEST suits the needs of ABC Company? "

safety

The treasurer of a corporation is negotiating with one of his/her suppliers to allow the corporation to have 30 days to pay the supplier s invoices. The treasurer is arranging:

short-term financing

"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: "

single payment note

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

sinking fund