treasury management
8. Describe the 3 stages of money laundering (Chapter 2)
1. PLACEMENT physical deposit of cash proceeds from illegal activities into an FI 2. LAYERING series of financial transaction designed to separate cash proceeds from their criminal or terrorist origins 3. INTEGRATION creating what appears to be a legitimate explanation for the source of the funds
5. The 3 components of the investment banking process (Chapter 3)
A) Origination- this involves consultation with a company raising funds about the characteristics of the issue and any underlying documents. The investment bank also monitors markets conditions and advises the company about the best time bring the issue to market in order to maximize the price per issued share and the amount of funds the firm wishes to raise B) Underwriting- The act of purchasing all or part of a block securities issued by a company. Under a full- underwriting arrangement, the investment bank or syndicate of investment banks owns the entire issue C) Distribution- the term applied to a securities sale to investors by an investment bank or syndicate of investments banks.
9. Describe continuous linked settlement (CLS) and why it was developed. (Chapter 4)
Central banks became increasingly concerned that the high level of settlement risk in existing practices, couples with an unexpected event of failure cold trigger a serious disruption of the global FX
2. Which of these objectives make up working capital management (Chapter 1)
Maintain liquidity Optimize cash resources Maintain access to short term financing Manage investments
1. What are the major objectives of treasury management (Chapter 1)
Maintain liquidity Optimize cash resources Maintain access to short term financing Manage investments Maintain access to medium and long term financing Manage financial risk Coordinate financial functions and share financial information Manage external vendors
4. What are the typical responsibilities of a treasurer (Chapter 1)
Managing overall financial risk, including FX risk. Arranging ST and LT external financing Managing relationships with banks and other service providers Overseeing day to day liquidity and cash management Investing for ST and LT Developing and implementing treasury policies and procedures Managing domestic and international payments
6. What are some typical activities for which a board of directors might grant authority to individuals within treasury organizations (Chapter 1)
Open close and modify bank accounts Establish credit facilities Oversee investments Issue debt and equity securities Devise implement and execute risk management strategies
7. What are the 6 tasks involved in daily cash management (Chapter 1)
Preparing a cash position worksheet Monitoring cash balances on deposit at financial institutions Collecting concentrating and disbursing cash Investing and borrowing funds on a ST basis when needed Researching and reconciling exception items such as unexpected charges on bank accounts missing deposits and uncleared checks Coordinating efforts with other finance areas such as AR AP tax and accounting
9. Why are shared services centers (SSCs) typically deployed (Chapter 1)
Reduce the costs of multiple or duplicate operations Standardize the process Increase the quality and timelines of services Create a higher degree of strategic flexibility
11. What is required for a director to be considered independent under NYSE standards (Chapter 1)
The board must determine that the director has no material relationship with the listed company either directly or as a partner, shareholder, or an officer to the organization
5. What are the typical responsibilities of a credit manager (Chapter 1)
The credit manager preserves and collects accounts receivable, sets corporate credit policies, approves the extension of credit terms and exposure to limits to customers and establishes information systems to monitor accounts receivables.
8. What is the downside of making treasury a cost center? (Chapter 1)
The downside to making treasury a cost center is that management may focus on the cost of treasury operations and not the value provided by the function, leading to difficulties in obtaining appropriate budget and staff
10. Define corporate governance. (Chapter 1)
The principles and processes by which any organization is governed. It provides the guidelines for managing a company so that it can fulfill its stated goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the LT
12. What are the major checks and balances that limit and monitor management performance (Chapter 1)
To protect stockholders, corporate governance procedures establish a set of checks and balances to place limits on executive prerogatives and monitor management performance. Important components include the BPD, shareholder meetings, independent external auditors and regulatory agencies.
3. Why is effective management of working capital critical to an organization (Chapter 1)
Working capital management is the foundation of effective treasury management. Without access to cash to pay vendors and employees, companies cannot operate. Many profitable companies have been forces to close their doors because of insufficient liquidity due to poor cash management.
7. What is the FATF and what does it do? (Chapter 2)
o ( Financial Action Task Force) (more than 30 countries) The development and promotion of policies aty both a national and international level to combat money laundering and terrorist financing
6. What is SEPA? (Chapter 2)
o (Single Euro Payments Area) aimed to make Europe more dynamic and competitive A system that is designed to create financial efficiency for countries using the euro by providing a unified system in which to perform financial transactions. The SEPA seeks to create a better system for credit transfers, an improved debit system and a cheaper way for individuals and firms to make transactions within member countries or regions.
16. What is the uniform commercial code? (Chapter 2)
o A set of laws governing commercial transaction in the US. It defines the rights and duties of all parties in a commercial transaction and provides a statutory definition of commonly accepted business practices.
11. What is the Durbin amendment? (Chapter 2)
o Amendment to the Dodd-Frank Act provision intended to limit debit card interchanges and fees and increase competition in payment processing
2. What is a central bank? (Chapter 2)
o An entity that is responsible for implementing and managing a countries monetary policy (money supply and interest rates)
18. List the most common types of bankruptcies allowed by US fed. Legislation (Chapter 2)
o Chapter 7: liquidation of a firm o Chapter 9: financially distressed municipalities o Chapter 11: business reorganization o Chapter 13: adjustment of debts for individuals with regular income o Chapter 15: establishment of bankruptcy trustees
14. Discuss the impact of SOX legislation on publicly traded firms (Chapter 2)
o Disclosure in annual reports the code of ethics applicable to senior financial officers. Companies that change or waive the code must disclose the event by filing a form 8-K with the SEC or posting a notice on the company website o Disclose in annual reports whether the audit committee has a financial expert o Establish and maintain adequate internal controls for financial reporting o Require audit committees to preapprove all audit and nonaudit services provided by the auditor and be briefed by auditors on the company's accounting, including alternative approaches that might be preferable to the company's current methods.
19. Describe the 3 types of formal bankruptcy (Chapter 2)
o Freefall A firm goes into bankruptcy and has no structured plan for coming out o Prearranged Management has arranged a tentative deal with some of the creditors or parties but not with all of them, generally these deals are done on an informal basis and are not legally binding o Prepackaged Management files with the SEC a formal plan that all classes of creditors have voted on and accepted. Essentially, the firm goes to court with all the details worked out and with everyone agreeing to the plan
5. Describe the main features of the third Basel accords. (Chapter 2)
o Goals: Improve the banking sectors liability to absorb shocks arising from financial and economic stress, whatever the source Improve risk management and governance Strengthen banks transparency and disclosures o Reforms target: Bank level regulation help raise the resilience of individual banking institutions to periods of stress System wide risks that can build up across the banking sector as well as the procyclical amplification of these risks over time
4. What are the principal committees of the bank for international settlements? (Chapter 2)
o Group of Governors and Head of Supervision (GHOS) o Committee on Global Financial System (CGFS) o Committee on Payment and Settlement Systems (CPSS)
17. What are escheatment statutes and how to they impact bank and companies (Chapter 2)
o Impact banks or companies that hold unclaimed assets of customers or employees Am entity holds money or property and the property goes unclaimed for some specified period od time
12. What are the main provisions of the USA PATRIOT act? (Chapter 2)
o Impose significant obligations upon nonbank FIs. It also includes nonfinancial entities potentially handling large value transactions such as car, boat plane and jewelry dealers o Makes all foreign banks with accounts in the US subject to US jurisdiction including the power to obtain records and info regarding customers o Prohibits all US banks from maintaining correspondent accounts for any foreign shell banks which are defined as foreign banks without a physical presence In any country o Prevents US credit card system operators from authorizing foreign banks to issue or accept US credit cards without talking steps to prevent usage by terrorists o Requires banks to know their customers, resulting in increased due diligence before taking on new business
20. What is a capital tax? (Chapter 2)
o In some foreign countries, particularly those experiencing an upsurge in economic growth, companies are assessed a capital tax on the initial capital used to establish a new venture, and on subsequent incoming capital or repatriated capital ( fiscal tool used by some countries to augment tax collections
9. What are the 5 general areas in which financial institution regulation is typical concentrated? (Chapter 2)
o Monitoring and managing the overall safety and soundness of the banking system o Setting and implementing monetary policy o Determining guidelines for the chartering of banks and other depository FIs o Allocating credit toward certain sectors of the economy and protecting consumers o Protecting investors purchasing through FIs
10. What are the major provisions of the Gramm-leach Bliley act? (Chapter 2)
o Permits the creation of financial holding companies that can engage in any activity that the fed considers financial in nature or incidental to it o Establishes the fed as the primary regulator of FHCs which are subject to consolidated capital requirements at the parent company level and bank style risk management at all levels. o Allows easier entry for foreign banks into the US fin. Services market o Includes key provision relating to consumer protection including specific relations regarding the protection of nonpublic personal info
1. What is the primary role that financial institutions play in the economy and why are they regulated? (Chapter 2)
o Provide a mechanism for savers of capital to transfer that capital to those who might best use it. Because this vital role of capital transfer is fundamental to the efficient functioning of the economy, FIs generally are regulated closely by monetary and other government authorities.
15. List and discuss the key fed regulations that impact treasury professionals (Chapter 2)
o Regulation D Implements the reserve requirement provision of the Fed reserve act of 1913 and imposes uniform reserve requirements on all depository institutions o Regulation E electronic fund transfer act of 1978 which establishes the rights, responsibilities and liabilities of parties engaging in consumer related EFTs and also protects consumers using systems such as ATMs , ACH and credit cards o J Establishes procedures dudes and responsibilities for check collection and settlement through the fed reserve system o Q Implemented the interest bearing account restriction of the glass steagall act of 1933 and barred the paying of interest on any corporate demand depository accounts o Y It defines and regulates the nonbanking activities in which bank holding companies and foreign banking organizations in the US may engage, including anti-tying restrictions o Z Primary impact of this regulation relates to credit cards offered to their customers; for educational institutions, the impact relates to the use of student loans • ( promoting informed use of credit by consumers) o BB Requires banks to help meet the credit needs of the entire community in which they do business o CC Establishes rules designed to speed the collection and return of checks and mandates banks to return unpaid checks expeditiously
13. What is the red flags rule? (Chapter 2)
o Requires creditors to develop and implement written identity theft prevention programs as part of the Fair and Accurate Credit Transactions Act of 2003.
3. What is the financial stability board? (Chapter 2)
o Was established to provide int. coordination of national financial authorities and international standard setting bodies. It works to develop and promote the implementation of effective regulatory supervisory and other financial sector policies.
7. what are on- us and on- we check clearing ? (Chapter 4)
• "on-us" check clearing involves a single bank and occurs when a payee deposits a check in an account at the same bank on which it is drawn • "on-we" check clearing is similar to on on-us but involves a group of banks that use a common third party vendor to process their checks for them.
9. what is a captive finance company (Chapter 3)
• A captive finance company is a type of industrial bank that is a subsidiary of a large industrial corporation and that finances purchases solely of the corporation's products. Ford motors offer the ability to extend credit to customers so they can buy their products
13. What are the primary differences between credit, debit and charge cards? (Chapter 4)
• A credit card is issued against a line of credit that the institution or merchant has extended, whereas a debit card is issued against a deposit account belonging to the cardholder.
1. what is a payment system? (Chapter 4)
• A payment is series of processes and technologies that transfer monetary value from one party to another. Payments are typically made in exchange for the provision of goods and services
14. what is PCI DSS? (Chapter 4)
• As a result of if several system breaches and compromises of data in card networks, the card industry created a governing body to establish and administer a series of strict requirements of the security card data. Merchants are required to go through an audit of their systems and applications to confirm they are compliant with the payment card industry data security standard (PCI DSS)
7. What is a bank identification code? (Chapter 3)
• BIC is a unique identifier that specifies the financial institutions involved - in some cases down to the branch level- in a financial transaction.
2. Is cash a payment system? Why or why not? (Chapter 4)
• Cash payments are not payment system, since the value transfer happens as part of transfer of the coin or currency, but they constitute a critical payment method nonetheless
6. List the four major categories of payments, other than cash (Chapter 4)
• Checks or drafts • RTGS (real time gross settlement) wire transfer • Low value electronic payments small value wire transfer • Card based payments
8. what are the four major clearing channels for transit checks in the united states? (Chapter 4)
• Clearinghouse- either formal or informal associations formed by banks in geographic area to permit the exchange of its items drawn on the member participants • Correspondent Bank: in correspondent bank clearing, the collecting bank maintains a depository account with another bank • Direct Send or Direct exchange: as an alternative to using the clearing channels just discussed collecting banks any arrange to send cash letters directly to paying bank or to a nonlocal federal reserve ban. • Federal Reserve System (fed): the fed also acts as a check - clearing agent. Depository banks can send letters to the fed which will then clear checks and transfer values from paying bans to depository banks
3. What are the different types of credit services offered by commercial banks (Chapter 3)
• Commercial banks are broad based lenders
2. What are the 2 types of depository accounts (Chapter 3)
• Current > checking or demand deposit accounts • Noncurrent or time deposit accounts
6. Describe the services offered by commercial bank trust departments to their commercial customers (Chapter 3)
• Establishing and managing employee pension plans or qualified employee benefit plans • Acting as corporate trustees for a corporate bond or preferred stock issues • Monitoring compliance with bond indenture agreements, which are contractual arrangements between issuers and bondholders
12. What are the three major currency options available for FedGlobal ACH payments? (Chapter 4)
• Fixed variable: US dollars are converted to a variable amount of a destination currency based on a competitive exchange rate. • Fixed to fixed- US dollar to us dollar: Payments are both transferred and received in US dollar. Settlement is between participating US Financial institutions and the fed reserve banks, in US banks • Fixed-to-fixed- foreign current to foreign currency: Payments are both transferred and received in foreign currency. The FX rate and settlement are managed and processed by participating US financial institutions and the respective foreign gateway operators via their foreign correspondent banks.
15. List the major components of merchant card fees. (Chapter 4)
• Interchange fees • Assessments • Processor fees or markups
1. What is a global institution and what are the primary services that it offers? (Chapter 3)
• One that operates in multiple countries in more than 1 part of the world, providing services to both domestic and multinational corporations
4. What are the four key elements of the payment process? (Chapter 4)
• Payment instruction are the information contained in an electronic transfer or a check • Payment generation is where the instructions are entered into the payment system itself • Clearing is the process where the FI's use the payments information to transfer money between themselves on behalf of the payor and the beneficiary • Settlement is the final step in the process and occurs when the beneficiary's bank account us credited and the payors bank account is charged.
5. Discuss the difference between settlement and finality. (Chapter 4)
• Settlement- the time at which the payee can actually use the money involved • Finality-
11. What are small value transfer or ACH systems? (Chapter 4)
• Small value transfer systems are electronic networks for the exchange of smaller payment instructions among FIs, typically on behalf of consumers.
8. What is IBAN? (Chapter 3)
• The international bank account number is away for banks accounts across national borders
3. Name the four basic participants in a payment. (Chapter 4)
• The payor makes the payment and his/her account debited for the value of the transaction • The payors financial institution (often referred to as paying bank) processes the value transfer on the payors behalf • The payee beneficiary is the receiver of the payment • The payees financial institution processes the transaction
10. what is SWIFT? (Chapter 4)
• The society for worldwide interbank financial telecommunications, it is not only a payment system but a communication system used by most of the banks in the world to transmit payment instructions
4. What are the typical trade services offered by large financial institutions (Chapter 3)
• Trade or commercial letters of credit, L/Cs i. Documents issued by a bank guaranteeing the payment of a customer's draft up to a stated amount for a specified period, provided that certain conditions are met • Standby L/Cs or guarantees i. Performance contracts issued by banks ensuring that certain terms and conditions will be met by the banks customer • Documentary collection i. Trade services payment method that processes the collection of a draft and accompanying shipping documents through int. correspondent banks • Bankers acceptance i. Negotiable ST instrument used primarily to finance the import of foreign goods, the export of domestic goods or the storage of readily marketable stable
