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Treasury Management Final
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? A. Wires exceeding $5 million cannot be transmitted using SWIFT B. The bank imposed a guidance line of credit on the account C. The company exceeded its balance requirement D. The bank refused funding on the company s discretionary line of credit - correct answer B. The bank imposed a guidance line of credit on the account 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? A. Ghost cards B. Smart cards C. PIN based cards D. Stored value card - correct answer D. Stored Value Card Company XYZ is now required to make electronic payments by 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. Institute a modified RSA system for its inventory - correct answer A. Negotiate a change in payment timing with its suppliers 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?
A. The process is easy for the payee but very intensive manually for the payor B. Negotiation of trade terms is required, but float terms are excluded C. Remittance detail, whether a lot or a little, can be easily included with all payment forms D. Collecting payment-routing details, and populating these into the software, is a significant task - correct answer D. Collecting payment- routing details, and populating these into the software, is a significant task 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 - correct answer C. Type of card accepted 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 A. I only B. I and II only C. II and III only D. I, II, and III - correct answer D. I, II, and III 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%
B. I and III C. II and III D. II and IV - correct answer A. I and II 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? A. $246,114. B. $208,571. C. $2,085. D. $20,857.14 - correct answer B. $208,571. 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? A. Exposure Horizon B. Diversification C. Liquidity D. Safety - correct answer D. Safety 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 - correct answer C. Deterioration of investment principal Money market funds are able to obtain very competitive trading terms because: A. There is no diversification
B. Of the economies of scale C. Invested funds are locked in for a specific period of time D. The investment manager only purchases high yielding instruments - correct answer B. Of the economies of scale Which of the following is NOT true for both banker's 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 - correct answer D. They both transfer the buyer s credit risk to a third party 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 - correct answer C. Credit and liquidity risk Which of the following BEST describes an advantage of a company going public? A. Increased management control B. Increased public disclosure C. Increased managerial flexibility D. Increased liquidity - correct answer D. Increased liquidity 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
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 earnings - correct answer C. Issue common stock 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" - correct answer C. A bond that is denominated in Japanese Yen, issued in the U.K. by a U.S. company " 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? A. Technical default B. cross-default provisions C. Material adverse change D. Total liabilities to assets ratio default - correct answer C. Material adverse change 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 - correct answer A. Sinking fund 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: A. Short-term financing B. Revolving credit agreement C. Factoring of receivables D. Uncommitted line of credit - correct answer A. Short-term financing "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? " A. 5.76% B. 5.68% C. 5.48% D. 5.37% - correct answer A. 5.76% Which of the following is a source of short-term financing? A. Bond issuance B. Factoring of accounts receivable C. Issuance of common stock D. Retaining profits - correct answer B. Factoring of accounts receivable 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? " A. 3.85% B. 2.48%
Buying a security with the intent of selling it prior to its maturity date to increase the return is an example of: A. Active investment strategy B. Matching investment strategy C. An interest rate future D. A diversification program - correct answer A. Active investment strategy 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? A. 0.46% B. 3.64% C. 3.73% D. 3.81% - correct answer D. 3.81% "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? " A. 1.86% B. 5.10% C. 6.32% D. 18.57% - correct answer C. 6.32% The yield curve is inverted. A creditworthy firm considering alternative debt maturities would MOST LIKELY: A. Enter into a short-term floating rate agreement B. Obtain long-term fixed interest rate debt C. Roll-over short-term debt at each maturity D. Obtain a long-term floating rate agreement - correct answer B. Obtain long-term fixed interest rate debt
"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? " 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 - correct answer D. Selling pressure for the firms stock will drive the price down 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? A. Grant the investors cumulative voting rights B. Grant the investors preemptive rights to the new issue C. Allow the investors to cast their votes by proxy at the next shareowners meeting D. Offer to stagger the election of directors - correct answer B. Grant the investors preemptive rights to the new issue "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 - correct answer A. Safety "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? "
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. For income or costs in one period D. Eliminate off-balance sheet debt - correct answer A. Create an infusion of cash into the company The goal of a successful investor relations program is to ensure: A. Achievement of the company's earnings-per-share objective 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" - correct answer "D. Effective two- way communication between a company, the financial community, and other constituencies" A U.S.-based electronics company that buys components from one of its foreign subsidiaries at a price above market is likely to: A. Be paid large dividends by the subsidiary B. Be sheltering profits in a low-tax country C. Need tax consultants to act as intermediaries D. Make payment with an intracompany loan - correct answer B. Be sheltering profits in a low-tax country 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" - correct answer A. 3, 4, 1, 2
"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 - correct answer A. Leave the funds in the account "Earnings Credit calculation: Assumptions Average ledger balance $1,500, 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? " A. $416. "B. $4,160.96 " C. $449. D. $457.71 - correct answer A. $416. You have a collected balance of $1,031,260 and the earnings credit is 60 bps for a 30 day month. Assuming a reserve requirement of 10%, what are your earnings credits for the month? "A. $4,577.05 " B. $457. C. $449. D. $503.48 - correct answer B. $457. Which of the following is a tool that companies use to obtain a quantitative rating of a financial institution s level of service? A. Relationship review B. Score card
"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? " A. Consolidation B. Deregulation C. Expropriation D. Nationalization - correct answer C. Expropriation "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? " A. Evaluated insurance coverage amounts B. Negotiated back-up lines of credit C. Developed a contingency funding plan D. Increased reserves - correct answer C. Developed a contingency funding plan 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? " A. Internal technology B. Compliance C. External theft/fraud D. Market - correct answer C. External theft/fraud 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 - correct answer D. Inventory levels Treasury management systems and ERP systems allow companies to do all of the following EXCEPT: A. Reduce cash processing costs B. Migrate external data into G/L infrastructure C. Increase productivity through seamless exchange of data D. Reduce redundant data entry errors - correct answer A. Reduce cash processing costs Today s modern cash management systems would include which of the following? A. Full integration to ERP systems B. Performance management systems and support C. Remote check disbursement software D. Full customer relationship management (CRM) capability - correct answer A. Full integration to ERP systems 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? A. Payment management B. Liquidity management C. International trade management D. Capital budget management - correct answer B. Liquidity management 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
