CTP Practice Exam

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? A. Leave the funds in the account B. Redeem the single payment note C. Prepay administrative expenses D. Transfer funds to the investment account

A

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? A. The hedged gains and losses are reported in comprehensive income B. The hedged gains and losses are reported in current period income C. The hedged gains and losses are reported in current period income together with the offsetting gains and losses of the foreign currency D. The hedged gains and losses are reported in comprehensive income together with the offsetting gains and losses of the foreign currency

A

A main characteristic of a company with regional offices using a centralized treasury function is: A. High level of control B. Increased borrowing costs C. Centrally determined depository accounts D. Increased operating costs

A

A wholesale foods supplier receives an order from ABC Foods located in Minnesota. The supplier's policy is to bill upon fulfillment of the order and not at delivery. ABC Foods pays upon receipt of goods. A blizzard has closed the manufacturing facility and roads; delivery will be delayed by two days. Which type of float occurs between the receipt of an invoice by ABC Foods, including the credit period, and the time ABC Burgers' account is debited? A. Payment B. Invoicing C. Collection D. Disbursement

A

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? A. Safety B. Liquidity C. Exposure horizon D. Risk/return trade-off

A

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

Which of the following is true when a company purchases goods using trade credit from suppliers? A. The buyer incurs no added cost if it pays on time B. The supplier will charge interest to the buyer C. The buyer should record this as a long-term liability D. The supplier places a lien on the goods sold until payment

A

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. A. 2.00% B. 0.09% C. 0.87% D. 0.02%

B

A company in the market to purchase a treasury management system (TMS) has issued a request for proposal to evaluate various vendors. One of the evaluation factors focuses on the long-term viability of the vendor. The company may have to choose between an untested new vendor with a superior product and an established vendor with an incomplete product suite. This dimension of the RFP is measuring what type of risk? A. Reputational risk B. Supplier risk C. Technology risk D. Financial risk

B

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? A. Financing working capital requirements B. Repaying short-term debt C. Reducing labor costs D. Factoring accounts receivable

B

A portfolio manager purchases a floating rate mortgage backed security that would currently provide a 4% yield to the company. Since mortgage rates have been fluctuating significantly over the past month, the manager is thinking about entering into an interest rate swap to hedge against the rate movements. Although the manager would remove most of the price sensitivity of the asset by executing the swap, it would also lower the total yield on the investment due to swap costs. What objective in the company investment policy is guiding the portfolio manager's decision? A. Risk analysis B. Risk/return trade off C. Preservation of principal D. Performance measurement

B

Capital budgeting is defined as the: A. Determination of the optimal level of debt versus equity B. Process of evaluating alternative investment projects C. Provision of sufficient borrowing facilities to meet transaction requirements D. Addition of capital to the firm which results in a cash inflow

B

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. Counterparties in a letter of credit transaction D. TARGET participants

B

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

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? A. Issue convertible debentures B. Issue long-term notes C. Issue common stock D. Use retained earning

C

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? A. Default and reinvestment risk B. Liquidity and price risk C. Credit and liquidity risk D. Default and payment risk

C

Loss exposures related to treasury management may include which of the following? A. Excessive product recalls B. PBGC violations C. Deterioration of investment principal D. Bank consolidations

C

RAL Industries is a manufacturing company that currently has locations in Canada 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

C

The accounting requirement that a product's selling costs be recorded in the same period as the product's revenue is recorded, regardless of when the cash is paid, is an example of the: A. Full disclosure principle B. Historical cost principle C. Matching principle D. Revenue recognition principle

C

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

D

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? A. $16,566.09 B. $165,000 C. $55,000 D. $171,688

D

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? A. Low contribution margin B. High financial leverage C. Low variable costs D. High operating leverage

D

Financing decisions in a budget are used to construct all of the following pro forma financial statement components EXCEPT: A. Debt B. Interest expense C. Shareholder's equity D. Inventory

D

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? A. Delegation of authority B. Clarify roles and responsibilities C. Procedure implementation D. Identify issues and conduct analysis

D

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

D

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? A. Use of a different terminal B. Goods or services sold C. Type of card accepted D. Time of batch closure

c

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

c