CTP® Practice Quiz

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CTP® Practice Quiz - 2

Due to several well-publicized and documented scandals, there have been many dramatic changes in the area of ethics and accountability in corporate governance. Basic elements of a code of conduct include: I. Confidential information; conflicts of interest; external activities; II. Protection for whistle-blowers; employee conduct; conformance to code; III. Conflicts of interest; criminal activities; employee conduct; IV. Stockholder contact; confidential information; protection for whistleblowers *

1 point

I & II only

II & III only

III & IV only

I & IV only

The PRIMARY goal of Treasury is to: *

1 point

Manage receivables

Maintain investments

Utilize cash efficiently

Maintain credit ratings

Treasury Policies & Procedures (P&P’s) provide a framework for the design of systems and controls. One purpose for writing and publishing the P&P’s is to: *

1 point

Regulate managerial behavior.

Minimize situations where unauthorized parties can act.

Designate potentially detrimental situations.

Provide baseline data on designated managers.

The derivative instrument with the greatest counterparty risk is: *

1 point

Premium

Swap Margin

Future

What best reduces the risk of internal fraud: *

1 point

Implementing positive pay

Separating disbursements and account reconcilement duties

Payee verification

Blocking unauthorized ACH debits

If a firm has paid all required interest on a debt facility but its fixed charge coverage ratio violates a loan covenant, then the company has experienced: *

1 point

Payment default

Technical default

Material adverse changes

External fraud

Which one of the following is NOT an area of concern for bank regulators? *

1 point

Monitor and manage the overall safety of the banking system

Determining guidelines for the chartering of banks

Protecting investors from loss of securities value

Allocating credit toward certain sectors of the economy

Disaster recovery is the term used to refer to: *

1 point

Restoration of treasury systems and communications

Crisis management actions

Alternative operating procedures

Communication to staff and customers

The Great Recession and the accompanying credit crisis had this general impact to the corporate treasury area: *

1 point

A tightening of the credit markets.

Financial institutions were forced to mark-to-market their portfolios of investments.

Many hedge funds were dissolved and treasurers had to search for other viable risk management options.

Falling interest rates and an inverted yield curve.

The treasurer of NEW Corp., LLC, approached his banker for a line a credit. He anticipates needing no more than $3 million. The lender offers NEW Corp a line of credit of $5 million at LIBOR plus 4.0%, or 4.78% at the time of the loan, plus a commitment fee on the unused portion of the line of 50 basis points. What NEW Corp’s annual cost for this line of credit? *

1 point

3.07%

4.78%

7.17%

5.11%

Last year, Star Corp. reported annual revenue of $14 million, COGS of $9.8 million, and a weighted average cost of capital of 8%. At year end, it had accounts receivable of $0.6 million and accounts payable of $0.7 million. Days’ inventory was 43.2 days. What was its days’ payables? *

1 point

15.6 days

18.3 days

22.3 days

26.1 days

Trade or commercial letters of credit (L/Cs) are 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. Which of the following is true about L/C’s? *

1 point

The issuing bank is providing government bonds as collateral.

The bank’s customer will not be charged a fee if certain conditions are met.

The bank certifies that the customer’s product or services create enough value to act as collateral.

The issuing bank is substituting its good name and credit on behalf of its customer.

Organizations typically benefit by which of the following actions? *

1 point

Hedging collection float and neutralizing disbursement float.

Neutralizing collection float and hedging disbursement float.

Maximizing collection float and minimizing disbursement float.

Minimizing collection float and maximizing disbursement float .

RBM Global recently relocated its New York-based accounting and call center operations to its office in Monterrey, Mexico. This is an example of: *

1 point

Outsourcing

Offshoring

Onshoring

Nearshoring

Company XYZ’s beta is 0.60. The risk-free rate of return (T-bill rate) is 2.0%, the inflation rate is 1.2%, the 10 year Treasury bond rate is 4.0%, and the expected rate of return on the stock market is 8.0%. What is XYZ’s required rate of return? *

1 point

8.2%

6.5%

5.6%

5.8%

The CCC is the average number of days between: *

1 point

When materials flow into inventory and when they flow out of inventory

The cash outflow for materials and the cash inflow from sales

Sale of materials and the inflow of cash

Cash deposit to a checking account and outflow of that cash to pay bills

Opening account bank balance plus expected settlements minus projected disbursements equals: *

1 point

Check float

Account analysis charges

Moving average account balance

Projected closing cash position

Arranging external financing, making investment decisions , negotiating bank contracts, and developing payment policies and procedures are usually all responsibilities of the: *

1 point

Controller

Board Director

Treasurer

Internal auditor

Assume that Abacas In(c) has an opening available balance of $3000 on Monday. Their bank has a 4:00 PM ledger cutoff and provides one-day availability for checks deposited by 2:00 PM. Based on the following activity, what is their closing collected balance on Wednesday?; Monday: Check deposits: $10,000 (made at 1:00 PM), Outgoing wires: $ 3,000; Tuesday: Check deposits: $12,000 (made at 3:00 PM), Outgoing wires: $ 4,000; Wednesday: Check deposits: $ 8,000 (made at 1:00 PM), Outgoing wires: $ 6,000; Thursday: Check deposits: $ 3,000 (made at 11:00 AM), Outgoing wires: $ 0 *

1 point

$6,000

$12,000

$20,000

The authorization of a credit card transaction includes: *

1 point

Funds remitted to merchant

Transaction amount cleared by merchant

Hold placed on credit limit

Transaction data routed to issuing bank

Collection float is the time interval or delay between: *

1 point

Payment initiation and when a company receives good funds.

Receipt of payment and when a company receives good funds.

Payment being mailed and when a company processed the payment.

Payment being processed and when a company receives good funds.

Which of the following marketable investment types is marked-to-market with gains or losses reported in other comprehensive income on the balance sheet? *

1 point

Trading securities

Held-to-maturity (HTM) securities

Available for sale (AFS) securities

Overnight investments

Potential actions to mitigate counterparty risk include: *

1 point

Reducing diversification.

Removing limits.

Adding multiple counterparties.

Adopting third-party investment custodians.

Finality of a debit-type payment occurs when: *

1 point

A payment is unconditional and irrevocable

The funds are debited from the payor’s account

The funds are made available to the beneficiary

The permitted return period has elapsed

Assume the following receipts and disbursement forecast: Week 1; Cash Receipts $2,000; Cash Disbursements $ (700); Beginning Cash Balance $1,000; Minimum Cash Required $1,200; Week 2; Cash Receipts $ 3,000; Cash Disbursements $(1,600); Minimum Cash Required $ 1,200; Assuming that the company didn’t make any investments or borrowings after week 1, what will be their cash position at the end of week 2? *

1 point

Investable Funds (Surplus) of $2,300

Investable Funds (Surplus) of $2,500

Financing Needed (Deficit) of ($2,300)

Financing Needed (Deficit) of ($2,500)

The International Bank Account Number (IBAN) is used by banks in *

1 point

Canada

China

United States

Turkey

Mergers, acquisitions, and reorganization are all examples of: *

1 point

Business events.

Business transitions.

Business continuity.

Business recovery.

Cooperation with purchasing, accounts receivable, accounts payable, risk management, pension management, auditing, tax and general ledger are all required for effective: *

1 point

Collaboration.

Information sharing.

Cash management.

Resource planning.

A treasury analyst uses a computer program to find the alpha value weight. Which cash forecasting methodology is she using? *

1 point

Exponential smoothing

Receipts and disbursements

Simple moving average

Distribution

The need to pay vendors is an example of which reason that an organization maintains liquidity: *

1 point

Opportunistic requirements

Regulatory requirements

Precautionary requirements

Transaction requirements

A comprehensive, organization-wide approach to identifying, measuring and managing risks that threaten the organization’s strategic objectives and overall operations is usually referred to as: *

1 point

Business Risk Management

Organizational Risk Management

Enterprise Risk Management

Operational Risk Management

Financial institutions use which of the following for the external transmission of international transactions? *

1 point

ASC X12 821

BAI2 20022

SWIFT MT940

TWIST X12F

Which of the following statements is true about credit rating agencies? *

1 point

A rating agency will generally have access to a corporation’s internal information, and the agency’s analyses and subsequent ratings are widely accepted by market participants and regulators.

In most cases, the rating agencies have access to confidential, nonpublic information that the securities issuers provide to the agencies only for the determination of ratings and this information then becomes a matter of public record.

Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law in 2010, requires the rating companies to provide greater disclosure of their rating models and methodologies, and to apply for ratings more frequently.

Ratings of specific long- and shortterm securities consider the attributes of the issuer, as well as the specific terms of the issue, the quality of the collateral and the creditworthiness of the institutional investors.

Commercial paper consists of: *

1 point

Collateralized, discounted, shortterm promissory notes issued by companies or commercial bank holding companies.

Unsecured, discounted, longterm promissory notes issued by companies or commercial bank holding companies.

Discounted, short-term promissory notes issued by companies or commercial bank holding companies that are covered by FDIC insurance.

Unsecured, discounted, shortterm promissory notes issued by companies or commercial bank holding companies.

Which of the following statements is correct with respect to a firm’s relative indebtedness? *

1 point

Issuing debt increases it; issuing equity reduces it

Issuing debt reduces it; issuing equity increases it

Issuing debt increases it; issuing equity increases it

Issuing debt reduces it; issuing equity reduces it

An investor purchases a corporate bond which matures in four years. The bond pays interest of $500 in each of years one and two and then $550 in years three and four. Calculate the present value of this payment stream assuming a discount rate of 8%. *

1 point

$1,732.51

$1,871.11

$1,902.14

$2,100.00

The weighted average maturity of cash flows for a bond expressed in years is: *

1 point

Interest rate risk

Absolute return

CAPM

Duration

Which of the following statements is FALSE with respect to a corporation’s weighted average cost of capital? *

1 point

It is referred to as the opportunity cost faced by the corporation’s investors.

The perceived risk of the corporation influences its cost of capital.

It may be calculated as the overall cost of long-term debt and equity.

An investment earning less than the cost of capital will increase the corporation’s value.

Which of the following statements about the USA Patriot Act (2001) is TRUE? *

1 point

Imposes significant obligations on non-bank financial institutions

Foreign banks with accounts in the USA are exempt from most of the Act

Allows U.S. banks to maintain correspondent accounts for all foreign banks

Gives banks the option of performing due diligence for new customers

For low volume large dollar B2B paperbased payments a company is most likely to use which method for collections? *

1 point

Retail lockbox

Wholesale lockbox

In-house processing center

Hybrid lockbox

A cash manager compiling a cash forecast starts by projecting the income statement and balance sheet. He is most likely using which method of forecasting? *

1 point

Receipts and Disbursement

Distributive sales

Short-term borrowing and investing

Percentage-of-sales

Which of the following is an advantage of investing in unsecured commercial paper: *

1 point

Broad range of maturities available up to one year

Backed by bank promissory note

Tends to be highly liquid

Highly rated by rating agencies

Having multiple banking relationships is a benefit because such an arrangement: *

1 point

Eliminates internal and external reconciliation costs.

Reduces concentration risk.

Provides access to multi-state banking statutory relief.

Lowers the percentage of short term borrowing.

Which of the following statements best describes the Cash Flow Timeline? *

1 point

The timing of cash inflows and outflows is usually synchronized and predictable

The amount of cash inflows typically do not match the amount of cash outflows

Working capital decisions should be based on the weighted average cost of capital

The Cash Flow Timeline ends with the declaration of dividends to shareholders

Money market instruments are issued by: *

1 point

Government entities, securities dealers, commercial banks, broker-dealers

Government entities, securities dealers, commercial banks, corporations

Securities dealers, commercial banks, broker-dealers

Securities dealers, commercial banks, corporations

Repos are classified as: *

1 point

Overnight, term or tri-party.

Open, closed, or sweep.

Overnight, sweep or tri-party.

Term, overnight and open.

A company is wishing to expand operations and is analyzing their cost of capital. 30.0% of total long term financing is provided by debt and 70.0% is provided by equity. The cost of equity is 10.0% and the cost of debt is 5.0%. If the marginal tax rate is 30.0% what is the company’s weighted average cost of capital? *

1 point

8.5%

5.6%

8.0%

10.5%

The basic elements of a policy include: *

1 point

Objectives, mission statement and goals

Scope, delegation of authority and procedures

Basic guidelines, performance measurement and reporting

Roles, responsibilities and retention guidelines

A small, rapidly growing high tech company plans to issue bonds. Management wants to bring in additional funds while keeping the low coupon bond issue outstanding. The company will issue: *

1 point

Warrants.

Depository receipts.

Preferred stock.

Class B stock.

CFOs and Treasurers must factor in which of the following when identifying the optimal capital structure for the company, commonly referred to as the “target capital structure”?; I. The competitive atmosphere in the company’s predominant industry; II. Senior management’s risk appetite; III. The relative costs of debt and equity at the time the funds must be raised; IV. Capabilities of the company’s investment bankers *

1 point

I & II

II & III

III & IV

I & III

A treasury professional can improve the cash turnover ratio by which of the following? *

1 point

Converting paper-based supplier payments to ACH

Deferring customer billings to the first of the following month

Utilizing controlled disbursement services

Replacing paper-based customer invoices with EDI

Which of the following type of account with a U.S. commercial bank is NOT insured by the FDIC? *

1 point

Checking

Negotiable Order of Withdrawal

Government money market mutual fund account

Money market account

What three factors need to be considered when choosing a current asset investment strategy? *

1 point

Business needs, risk tolerance, management style

Business stability, risk tolerance, management style

Business credit, risk tolerance, management needs

Business needs, risk avoidance, management needs

Backyard Barbeque employs 5 professional staff to oversee its investment portfolio which exceeds $2 billion. These staff members carefully monitor cash forecast models and capital requirements to ensure excess cash is invested and that known future expenditures match investment maturities. What investment strategy best fits the practices at Backyard Barbeque?

1 point

Actively managed portfolio

Tax-based strategy

Buy-and-hold to maturity

Matching strategy

Clear selection

Which of the following statements best describes the benefit of an ERP system? *

1 point

Eliminates the need for Treasury to merge data obtained from external sources.

Improves controls by using duplicate copies of information on separate databases.

Lowers banking fees by reducing costs associated with straightthrough processing.

Allows companies to eliminate the manual processing and rekeying of information.

Equity shareholders would like issuance of long term debt as a method of raising funds because: *

1 point

The value of existing shares will not be diluted.

Debt holders’ votes in elections of the Board of Directors are weighted at 50% of equity holders’ votes, so equity holders have greater influence in the company’s decisions.

Bonds trade in the market at the issued price so equity has a greater upside price potential.

In a bankruptcy situation, equity holders have first preference as debtors.

The dollar-days of float are calculated by: *

1 point

Multiplying the dollar amount of the check by the number of days from the time payor mails the check to time when payee is granted credit.

Dividing the dollar amount of the check by the number of days from the time payor mails the check to time when payor is debited.

Multiplying the opportunity cost of funds by the average daily float.

Dividing the dollar amount of the check by the number of days from the time payor mails the check to time when payee is granted credit.

In the United States, the responsibility for acting in the best interests of the shareholders, generally interpreted as maximizing shareholder wealth, falls on: *

1 point

Investor relations.

Corporate finance.

Board of directors.

Corporate officers.

High quality government securities used to collateralize public funds typically includes all of the following except: *

1 point

U.S. Treasuries.

CDARS.

Federal agency securities.

Municipal bonds.

A startup company is developing their new cash forecasting model. Which method would be most useful for them to test their model? *

1 point

Ongoing validation

In-sample validation

Out-of-sample validation

Documentary validation

Which of the following items are INELIGIBLE to become substitute checks under the Check 21 Act? *

1 point

U.S. Treasury checks

Government warrants

Money Orders

Foreign checks

Shares to be retired, held for later resale, used for a compensation program, or used to fund future acquisitions all come from what kind of stock? *

1 point

Preferred stock

Common stock

Treasury stock

Hybrid stock

Fog City Chocolates is a global corporation headquartered San Francisco. Their marginal income tax rate is 35% and annual sales exceed $10 billion. When selecting a new investment they are looking for yield. Based on the following investment offerings, what yield should Fog City Chocolates anticipate?; Investment #1: U.S. T-Bill 3.0%; Investment #2: Arizona Municipalities 3.0% *

1 point

2.9%

3.0%

3.09%

3.11%

SAS70 is an internationally recognized auditing standard developed by the American Institute of Certified Public Accountants (AICPA) in 1992. It is used to report on financial service providers’: *

1 point

Use of derivatives to hedge risk

Volume of transactions processed

Level of adequate insurance required to replace assets

Asset quality of capital reserves

Within the finance function of a corporation which department is responsible for making decisions concerning the need for present and future funding to support operations, and forecasting of revenues to support the company’s planned growth? *

1 point

Funding

Capital Budgeting

Financial Planning

Risk Management

A supplier of medical test equipment has requested that all customers begin paying by electronic funds transfer instead of check. One customer, a local county hospital with a cost of funds of 12%, expects this will reduce their disbursement float by 3 days. Assuming no difference in cost to remit by EFT, what pricing discount should they negotiate with the supplier in response to this requirement? *

1 point

0.0%

0.10%

0.12%

0.36%

When a bank issues an unconditional promise to pay a time draft issued by a purchaser of goods to pay a supplier, that promise to referred to as: *

1 point

FDIC insurance

Bankers acceptance

Secured commercial paper

Letter of credit

The three primary reasons why treasury policies and procedures are required include compliance, organizational needs and: *

1 point

Risk management

Document guidelines

Audit requirement

Exception management

Total stockholders’ equity is the sum of: *

1 point

Accruals, APIC, long-term debt

Accruals, par value, retained earnings

APIC, par value, retained earnings

Long-term debt, par value, treasury stock

The earnings allowance rate applied to collected balances is usually determined by which of the following rates? *

1 point

90-day T-bill

LIBOR

Prime

Fed Funds

All of the following are payment formats for EDI except: *

1 point

CTX

ACH

CCD+

TXP

Upon entering into an interest rate swap with a notional principal of $10,000,000, what is the initial amount of money the counterparties must exchange at the beginning of the swap? *

1 point

$5,000,000

The future value of $10,000,000

$10,000,000 discounted

CT Check Cashing routinely cashes payroll checks from JD Software. Someone presents a fraudulent check from JD Software to CT Check Cashing. The fraudulent item looks virtually identical to JD Software's regular payroll checks. CT Check Cashing pays the person cashing the check the amount for which it is issued. CT Check Cashing later discovers that the check was fraudulent and wants JD Software to reimburse them for the amount of the check. Which of the following statements is correct? *

1 point

Fraudulent endorsement has occurred and JD Software will not be held liable for this item.

This item is payable through draft so JD Software will be liable to CT Check Cashing for the amount of the check.

JD Software has a controlled disbursement account so CT Check Cashing will not have recourse against JD Software for this item.

Positive pay is designed to reject the item, but JD Software may ultimately be held liable if CT Check Cashing is deemed to be a holder in due course.

A company can use all of the following documents to establish a relationship with a bank EXCEPT: *

1 point

account analysis statements.

account resolutions.

service agreements.

signature cards.

The yield on any short-term investment instrument is a function of the maturity or holding period, the amount paid and: *

1 point

the cash flows received.

the money market yield.

the after-tax yield.

the issuing price.

Based on the following information, how much money will XYZ Company owe the bank for monthly service charges after the earnings credit is applied?; Collected Balance $1,200,000; Deposit Float $10,000; Reserve Requirement 10%; Earnings Credit Rate 5%; Monthly Service Charges $5,000; Days in month 30 *

1 point

$68.49

$436.99

$561.64

A company has negotiated a credit facility with the following terms: $5,000,000 line of credit; $3,000,000 average borrowing; 30 basis point commitment fee on unused portion of line; Interest rate on advances is 1-month LIBOR plus 4%; 1-month LIBOR is currently 2%; Compensating balance requirement of 20% on the outstanding borrowings; What is the effective annual borrowing rate for the line of credit? *

1 point

6.0%

6.2%

7.8%

9.3%

On June 1, a manufacturing company experienced a system failure that lasted more than 24 hours. The company did not have any contingency plans in place and as a result the cash manager was unable to process the following payments: $25,000 to the p-card issuer, $125,000 for weekly payroll, $500,000 for a bond interest payment, $260,000 for the weekly vendor payments and $50,000 for the monthly utilities. The receivables were deposited at the bank; however, the cash manager does not have a way to confirm the amounts. The suppliers are threatening to stop shipments due to the delay in payment and the loss of supplier shipments threatens the company's just-in-time production. What did the manufacturing company trigger as a result of the system failure? *

1 point

Supplier risk

Default on the debt

Electronic security risk

Contingency business resumption plan failure

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? *

1 point

Credit and price risk

Liquidity and price risk

Default and liquidity risk

Default, liquidity and price risk

An assistant treasurer discovers that the CFO has been allowing other executives to exercise stock options during blackout periods. What will prevent the assistant treasurer from losing his/her job if he/she reports this discovery? *

1 point

Investor Relations Policy

Code of ethics

Sarbanes-Oxley Act

Whistle-blower law

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