CTP® Practice Quiz

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CTP® Practice Quiz - 8

A multinational company owns a United Kingdom subsidiary that has total assets equal to $1 million and intercompany loans due to the parent company equal to $1 million. It would like to undertake a balance sheet hedge of the U.K. subsidiary's GBP liability because it expects a depreciation of the pound. Given these circumstances, which of the following actions would be appropriate? *

1 point

Borrow GBP from a U.K. bank to repay the intercompany dollar debt.

Borrow USD from a U.K. bank to repay the intercompany dollar debt.

Take no action because exchange rates cannot be predicted.

Exchange rates are fixed and thus no losses should occur.

Which of the following are primary objectives of cash forecasting?; I. Managing liquidity; II. Optimizing float; III. Enhancing financial control; IV. Minimizing borrowing costs *

1 point

I and II only

II and III only

I, III, and IV only

I, II, III, and IV

A nationwide discount retailer is re-evaluating financing methods since the most-popular and most-expensive electronics 'must-have' item for this year is set to ship from factories in China. Which of the following credit facilities would be MOST effective for the retailer to use? *

1 point

Factoring

Asset-based credit line

Securitization

Commercial paper issuance

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? *

1 point

Pro forma income statement

Weighted average cost of capital

Capital budget forecast

Delayed accounts receivable collection

Financial risk management requires monitoring changes in which of the following?; I. Interest rates; II. Foreign exchange rates; III. Commodity prices; IV. Cost of insurance *

1 point

II and IV only

I, II, and III only

I, III, and IV only

I, II, III, and IV

Regarding dividends, on which of the following dates would a company's current assets be reduced? *

1 point

Declaration date

Ex-dividend date

Payment date

Record date

Which of the following business practices does NOT comply with the Uniform Commercial Code? *

1 point

A company reconciles its bank statements within 30 days of receipt.

A company receives a check marked "paid in full" and disputes it 120 days later.

A bank exercises ordinary care when it examines signatures on checks received.

A bank elects to return stale-dated items.

ASC Topic 815 (FAS 133) is applicable when accounting for which of the following? *

1 point

Gain on an equity investment

Purchase of a bond investment

Market value of collateral

Purchase of a forward

If the Federal Reserve Board increased the discount rate, you would expect: *

1 point

long-term bonds to increase more in price than short-term bonds.

short-term bonds to decrease more in price than long-term bonds.

long-term bonds to decrease more in price than short-term bonds.

that there would be no effect on either long- or short-term bond prices.

With the advent of the euro, many U.S. companies have seen a reduction in their number of foreign currency transactions. As a result, these U.S. companies have benefited from which of the following?; I. Reduced FX transaction costs; II. Consolidated banking relationships; III. Simplified exchange risk management; IV. Reduced need to monitor foreign political climates *

1 point

I and II

II and III

I, III, and IV

I, II, and III

Which of the following would be the most efficient method of reducing the number of cross-border payments between two units of a company? *

1 point

A pooling system

A re-invoicing center

A netting system

A multicurrency account

The role of the depository bank in the check-clearing process is typically which of the following? *

1 point

To inspect the check for proper signature

To encode the check amount on the MICR line

To place a hold on the check until cleared

To ensure that the check is not stale-dated

Which of the following investment instruments would provide a company with the greatest liquidity and least risk? *

1 point

Certificate of deposit

Commercial paper

Certificate of participation

Treasury bill

Which of the following instruments simplifies the paperwork connected with loans that have multiple advance features? *

1 point

Master note

Banker's acceptance

Indenture agreement

Note purchase agreement

Unrealized holding gains and losses arise when trading securities are: *

1 point

marked-to-market and are reported under current income.

marked-to-market and are reported under retained earnings.

offset by the gains and losses of the item being hedged.

recorded on the anniversary date of the purchase.

Which of the following is true about the credit enhancement of commercial paper? *

1 point

It permits weaker firms to issue dealer paper.

It relies on uncommitted credit facilities.

It expedites the registration of the issue with the SEC.

It allows firms to replace direct paper with dealer paper.

Which of the following must be considered when designing the basic framework for a cash management system? *

1 point

Industry standards and practices

SEC regulations

FASB rulings

Public company listing guidelines

After several internal discussions about treasury management systems (TMSes), ABC Company has determined that it has no need for customization but that it does want a backup for high priority capabilities. The company wants to reduce its IT costs and resources but still have IT support with in-depth knowledge of the solutions available. These parameters will MOST LIKELY result in what kind of TMS? *

1 point

An ERP module TMS

An integrated TMS

A hosted ASP TMS

Development of its own TMS

A company sells products to customers on credit, generating accounts receivable. The company uses the accrual accounting method. Once the company collects good funds from its customers, what is the impact on the financial statements of the company? *

1 point

Cash balance is not affected, and income is increased.

Cash balance is increased, and income is decreased.

Cash balance is increased, and income is not affected.

Cash balance is increased, and income is increased.

An optimal concentration system minimizes all of the following EXCEPT: *

1 point

Administrative costs.

Disbursement float.

Excess balances.

Transfer costs.

Which of the following is an example of a qualitative factor used in making credit decisions? *

1 point

Character

Capital

Collateral

Capacity

The CFO of a growing company has decided that it would be prudent to insure the company against potential loss from dishonest acts of employees. The treasurer has been given the responsibility of selecting and negotiating the type and amount of protection required. After analyzing the overall risk to the company, the treasurer decides that the greatest exposure to this type of risk is within the cash management function of the company. The MOST appropriate type of protection would be: *

1 point

fidelity.

crime.

blanket.

fiduciary.

The company's monthly credit sales are: April: $400,000; May: $600,000; June: $1,000,000; July: $750,000.; And its receivables collection pattern is: 10% of sales are collected in the current month of the sales; 25% of sales are collected one month after the sale; 35% of sales are collected two months after the sale; 20% of sales are collected three months after the sale; 10% of sales are collected four months after the sale. Assume a 90-day quarter. If this company wishes to achieve a second quarter (April-June) DSO of 60 days, what would its ending accounts receivable balance need to be? *

1 point

$666,667

$1,333,333

$1,500,000

$3,000,000

The Treasury Analyst at an investment firm has entered the company into a repurchase agreement with a counterparty at the direction of the Treasury Manager. The compliance office has determined that the trade was done in violation of the company investment policy. The Treasury Manager has the power to approve the execution of trades; however, the Treasury Analyst was not a designated trader on behalf of the firm. Which area of the investment policy was violated by the Treasury Analyst? *

1 point

Segregation of duties

Delegation of authority

Exception management

Roles and responsibilities

A company is filing for bankruptcy protection and is concerned about the welfare of its sizeable retiree population. Under ERISA, it is obligated to perform which of the following actions regarding its defined benefit plan? *

1 point

Use proceeds from asset sales to fund the plan liability.

Convert the plan to a portable, hybrid vehicle.

Record a distress termination with the PBGC.

File a 5500 report (bankruptcy amendment) with the DOL.

When investing in commercial paper, the investor's primary consideration should be which of the following? *

1 point

Issuer's credit rating

Method of settlement

Interest rate risk

Dealer used

The Treasury Manager of a privately held company is looking to finance new equipment that has a useful life of 5 years. What type of financing would the Treasury Manager MOST LIKELY employ to finance the equipment? *

1 point

Equity shares

Long-term bond

High-yield bond

Installment term loan

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. *

1 point

3, 4, 1, 2

3, 4, 2, 1

4, 3, 2, 1

4, 3, 1, 2

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

1 point

High financing costs

Low accounts receivable balances

High inventory levels

Low tax liabilities

One of the advantages of raising capital through public offerings is that: *

1 point

it reduces fluctuations in the price of capital.

it reduces the costs of managing reporting and disclosure.

large amounts of debt and equity can be raised at the risk-free rate.

large amounts of debt and equity can be raised at prevailing rates.

In most countries other than the United States, which of the following is used to compensate banks for services provided? *

1 point

Value dating

Automatic overdraft services

Giro systems

Bilateral netting

A treasury manager expects the price of a commodity to be highly volatile between the time of option purchase and exercise. Which option style would provide the greatest flexibility? *

1 point

American Style

Bermuda Style

Cayman Style

European Style

A manufacturing company selling engines and other mechanical equipment, with invoices averaging $15,000, would use which of the following systems? *

1 point

Over-the-counter collections in numerous locations; deposits to field banks

A company processing center; deposits to nearby bank(s)

A wholesale lockbox with multiple deposit points

A retail lockbox with multiple deposit points

A small for-profit, start-up company is designing a retirement plan with the goal of minimizing costs and operating income volatility while providing a qualified retirement savings vehicle. Which of the following would be the BEST choice? *

1 point

Defined benefit plan

Internal Revenue Code 401(k) plan

Hybrid plan

Internal Revenue Code 403 (b) plan

Which of the following is NOT a method multinational companies (MNC) use to repatriate capital? *

1 point

Internal factoring

Dividends

Transfer pricing

Management fees

In terms of capital structure, lease financing normally has the same effect as: *

1 point

Investing.

Borrowing.

Capitalizing.

Lending.

The treasury manager of an auto-parts manufacturer has noticed that checks were sent to a foreign individual not on the approved vendor list. The payables manager has explained the payments but did not provide an invoice. The treasury manager did no further research and is later disciplined for: *

1 point

not reporting suspicious activity under the USA Patriot Act.

not purchasing enough surety insurance.

ignoring International Accounting Standards Board regulations.

not implementing 'Check 21.'

XYZ Company 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? *

1 point

Hire an investment banker to underwrite the stock on a full underwriting basis.

Hire an investment banker to issue the stock using a master registration statement.

Hire an investment banker to underwrite the stock with no flotation costs.

Hire an investment banker to underwrite the stock on a best efforts basis.

A small import/export company, XYZ Company, has recently set up an account with a German firm. The contract between the companies states that XYZ is to be paid as soon as all documents are in order showing that the transaction terms have been met. Which of the following forms of payment drafts would be MOST appropriate for XYZ? *

1 point

Payable through

Sight

Time

Preauthorized

An internal auditor discovers that employees can enter and approve their own wire transfers. This practice violates what internal control? *

1 point

Adequate segregation of duties

Accurate reporting of cash transactions

Appropriate monitoring of covenant compliance

Proper authorization of investment transactions

Company XYZ had the following sales over the last 5 years: Sales on Year 1: $200 million, Year 2: $350 million, Year 3: $565 million, Year 4: $800 million, Year 5: $1 billion.; The company raised funds to invest in its operations. Considering the company's growth, it is interested in future options that will allow it to maintain its debt level and keep debt costs low. The company is not concerned about changes to the working capital structure. Which security did the company issue? *

1 point

Unsecured bond

Bond with an equity kicker

Zero-coupon bond

Convertible security

XYZ Company is considering the purchase of a security that generates a tax equivalent yield of 10% and a tax exempt yield of 7.1%. What is XYZ's marginal investment tax rate? *

1 point

29.0%

36.1%

40.8%

61.0%

All of the following are account reconciliation services EXCEPT: *

1 point

sort only.

full reconciliation.

payor bank services.

positive pay services.

Which of the following is considered a financing decision? *

1 point

Issuing medium-term bonds or preferred stock

Comparing risk and return of projects

Allocating capital among different projects

Distributing or retaining current earnings

The credit risk in the settlement of a Fedwire is borne by the: *

1 point

sending company.

receiving bank.

Federal Reserve.

receiving company.

A company’s receivable balance pattern is as follows: 95% sales from current month; 70% sales from 1 month prior; 10% sales from 2 months prior; 0% sales from 3 months prior; Sales are as follows: February $430; March $500; April $750; May $600; June $400; June’s estimated cash inflow is: *

1 point

$400

$561

$670

$875

A merchant has a chargeback rate of 0.03% on average daily sales of $200,000. After switching to a new merchant acquirer that is a bank, the merchant sees the rate increase to 0.05% or $10,000. The merchant's analysis reveals that the bank maintains its data warehouse in another country where the system network is routinely hacked. What act or standard is being violated? *

1 point

Bank Secrecy Act

Foreign Corrupt Practices Act

Money Laundering Control Act

Payment Card Industry Data Security Standard

A company's investment guidelines typically restrict all of the following EXCEPT: *

1 point

maturities of instruments that may be purchased.

proportion of the portfolio invested in specific types of instruments.

purchase of unrated securities.

issuance of commercial paper.

Monday: Receipts $150, Forecast $150; Tuesday: Receipts $100, Forecast $150, a=0.5; Wednesday: Receipts $115, Forecast $125; On the basis of the data above, what is the forecast for Thursday's cash receipts, under the exponential smoothing method? *

1 point

$110

$120

$122

$130

XYZ Inc. is a publicly traded company with revenues of $1B and an operating profit of 7.5%. The treasury organization consists of a treasurer and an assistant treasurer. The assistant treasurer is responsible for the creation and approval of all payments. The treasurer is responsible for compilation of the financial statements. Under Section 404 of the Sarbanes-Oxley Act, what should be viewed as a concern? *

1 point

Audit committee governance

Segregation of duties

Subcertification

Signature on SEC Form 10-K

In order to increase liquidity, ABC Motor Company bundled its customers' installment payments and resold them to other investors. This is known as: *

1 point

factoring.

securitization.

reclassification.

secondary distribution.

Company RST is a seasonal retailer who has just completed its holiday season and is temporarily flush with cash. The treasurer has identified approximately $15 million of excess balances and is trying to determine what to do with the surplus cash. Cash forecasts show that the funds will be needed in approximately 30 days to replenish inventory. Which of the following plans should the treasurer implement immediately? *

1 point

Leave the funds in RST's bank account earning an ECR of 1%.

Purchase low-risk, short-term investments yielding 2%.

Prepay a $15 million, 5% loan maturing in 1 year.

Buy a long-term, highly rated investment paying 2.10%.

Assuming a marginal tax rate of 36%, the taxable equivalent yield for an investment with a tax exempt yield of 3% would be. *

1 point

1.92%.

4.08%.

4.69%.

8.33%.

XYZ Company experienced a substantial monetary loss due to over exposure to one particular sector of the stock market. The Treasurer had invested in companies tied to five different sectors, but violated the company investment policy by exceeding a 10% limit for any sector. In developing its investment policy, what should XYZ Company have considered to prevent this scenario? *

1 point

Segregation of duties

Exception management

Internal and external controls

Diversification of investments

Major Manufacturing Inc. (MMI) is a manufacturer of customized restaurant equipment. MMI's supplier relations policy is to take advantage of trade discounts, when available. All suppliers offer payment terms of 1/10, net 30. MMI invoices customers at the end of its 30-day manufacturing cycle. Which of the following is the correct chronological sequence of the events listed?; 1. Customer invoice is sent.; 2. Supplier payment is sent.; 3. Customer payment is received.; 4. Order is shipped.; 5. Customer order is received.; 6. Supplier order is placed. *

1 point

5, 6, 2, 4, 1, 3

5, 6, 4, 2, 3, 1

6, 5, 2, 4, 3, 1

6, 5, 4, 2, 1, 3

The Treasury Department of ABC Corporation has been working hard to prevent external fraud from impacting its operating bank accounts. Recently, they implemented protective services on their disbursement accounts. This morning, the treasury analyst realized that an expected sales tax payment to the state of Maryland had not occurred. The analyst knew that it had been successfully initiated yesterday. Which service used by the corporation may need to be adjusted to pay the state of Maryland? *

1 point

ACH filter

Positive pay

BAI reporting

Payee verification

A U.S. government agency issues securities transfers using Fedwire Book-Entry Securities System. The first transfer request of the day in the amount of $1 million is sent at 1:00 p.m. EST, the second one for $2 million at 3:30 p.m. EST, the third one for $3 million at 4:30 p.m. EST and the fourth one for $4 million at 5:00 p.m. EST, all on the same day. Which of the following represents the total value transferred at 5:00 p.m. EST that day? *

1 point

$1 million

$3 million

$6 million

$10 million

The future value of $60 invested at 8% compounded per year for three years is: *

1 point

$47.63.

$64.80.

$74.40.

$75.58.

A customer buys a laptop for $850 and a CD for $13. Only items with sale price of $15 and greater are subject to value added tax (VAT). Assuming VAT of 8.5%, how much tax does the customer incur at the point of sale? *

1 point

$72.25

$73.36

$722.25

$922.25

A retail lockbox system is characterized by which of the following?; I. An emphasis on processing cost; II. Detailed information on discounts taken; III. Small-dollar amounts per invoice; IV. Multiple invoices per payment *

1 point

I and II only

I and III only

I, II, and III only

II, III, and IV only

A company is interested in lowering its overall banking costs, managing netting, pooling, reinvoicing, and centralizing FX exposure at headquarters. Which of the following options will accomplish this? *

1 point

In-house banking

Shared service center

Company processing center

Automated clearing house

Which of the following is a true statement about operating leverage? *

1 point

The higher the company's fixed costs are, the lower its operating leverage.

The higher the company's fixed costs are, the higher its operating leverage.

The lower the company's fixed costs are, the higher its operating leverage.

The higher the company's variable costs are, the higher its operating leverage.

A-Plus Company has made arrangements for a new insurance broker to provide products to its employees. Historically, A-Plus Company's employees made insurance payments via payroll deduction, but the new broker will be collecting payments from employees directly. What will the broker MOST LIKELY use to minimize collection float? *

1 point

ARC

CCD

PPD

RCK

Kensley Biscuit Company Ltd. decides to invest $125,000 in new packaging equipment to help it keep up with increased demand. As a result of this investment, the company's annual profit improves by $11,763. If Kensley's cost of capital is 8.25% and its corporate tax rate is 42%, what is its residual income (RI) from the investment? *

1 point

$842

$970

$1,451

$11,763

Which of the following is a purpose of the Check 21 Act? *

1 point

Grant legal status for digital signatures

Foster innovation in the ACH payment system

Facilitate check truncation

Improve check imaging and archiving

To strengthen outside auditor independence with regard to publicly held companies, the Sarbanes-Oxley Act requires that: *

1 point

employment of staff from companies' accounting firms be approved in advance by the audit committees.

companies change accounting firms for audit services at least every seven years.

accounting firms supply audit work papers annually to the SEC for their clients.

the lead audit partner and audit review partner be rotated every five years.

In developing an operating budget, the first and MOST critical step is? *

1 point

Get management approval.

Generate a sales budget.

Establish cost allocations.

Determine capital structure.

Company A is a large public company with annual revenue of $1.2 billion and high fixed costs. Its stock is listed on the New York Stock Exchange. Company B is a mid-sized company with annual revenue of $100 million and low fixed costs. Its stock is listed on the NASDAQ. Which of the following statements is MOST LIKELY to be true when comparing Company A and Company B? *

1 point

Company A has greater reporting requirements and more marketable stock than Company B.

Company A has greater reporting requirements and less marketable stock than Company B.

Company B has greater reporting requirements and more marketable stock than Company A.

Company B has greater reporting requirements and less marketable stock than Company A.

XYZ Company is interested in issuing a bond to finance a new venture opportunity. The new venture is not expected to generate any cash flow for several years. Because of this, XYZ Company would prefer to issue a bond that does not require interest payments. What type of bond should XYZ Company issue? *

1 point

Zero-coupon bond

Municipal bond

Tender option bond

High-yield bond

The regional offices of ABC Company implemented a system that would allow the employees to pass information between regions in a secure fashion. This system requires that all offices have the same key in order to read messages sent electronically. Which e-commence security type is MOST LIKELY being used? *

1 point

Secure sockets layer

Layered authentication

Public key infrastructure

Shared secret key system

A portfolio manager's investment policy states that they are not allowed to hold any investments that have extension risk. Which type of investment should the portfolio manager avoid? *

1 point

REMICs

Ginnie Mae MBSes

Municipal bonds

Treasury notes

A company wants to gather daily balance reporting from its international subsidiaries' bank accounts. Which of the following systems would allow the company's bank to gather the balance positions from the local banks? *

1 point

SWIFT

CHIPS

Giros

EDI

During the 1970s, many companies instituted dividend reinvestment plans (DRIPS). There are many benefits of this plan. What is the one negative aspect? *

1 point

Reduces the expense of shareholder relations

Leads to an increase in the number of small shareholders

Does not allow automatic reinvestment of dividends

Leads to a reduction in the number of small shareholders

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? *

1 point

Cost reimbursement

Property

General liability

Business interruption

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? *

1 point

Ghost cards

Smart cards

PIN based cards

Stored value card

Bank A is to pay Bank B $6,000,000 for 10 transactions that occurred throughout the day. Bank B is to pay Bank C $8,000,000 for 13 transactions that occurred throughout the day. Bank B is to pay Bank A $5,000,000 for 17 transactions that occurred throughout the same day. These banks operate using a gross settlement system. How many transactions will occur between these banks to settle the payments? *

1 point

Which of the following is sought from a typical cash management services Request for Proposals (RFP)? *

1 point

CAMELS score

Asset investment strategy

Pension funding status

Implementation team

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

1 point

Sinking fund

Balloon payment

Mortgage

Zero-coupon bond

A call option is said to be 'in-the-money' when the market price of the underlying security is: *

1 point

lower than the strike price.

same as the strike price plus premium.

higher than the strike price.

same as the strike price minus premium.

The PRIMARY objective of a corporation is to: *

1 point

maximize value to shareholders.

maximize cash inflows.

minimize the cost of capital.

maintain adequate liquidity.

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