CTP® Practice Quiz

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CTP® Practice Quiz - 6

The Treasurer at Worldwide Industries is concerned that its retail lockbox provider, Bank A, is not PCI DSS-compliant. Bank A processes 500,000 checks per month for Worldwide Industries. Worldwide Industries uses a third-party provider, Pay Point, for their credit card payments and funds are wired daily to Worldwide's depository account at Bank A. What should the Treasurer do? *

1 point

Take no action as Bank A would not be required to be PCI DSS-compliant.

Issue an RFP and search for a lockbox provider that is PCI DSS-compliant.

Stop accepting credit card payments since Bank A is not PCI DSS-compliant.

Notify all customers that pay by credit card that Bank A is not PCI DSS-compliant.

On a statement of cash flow, which of the following items are considered sources of cash?; I. Increase in short-term investments; II. Net income; III. Increase in accounts payable; IV. Decrease in long-term debt *

1 point

I and III only

II and III only

II and IV only

I, III, and IV only

For a retirement plan to be qualified under ERISA, employer and employee contributions must be: *

1 point

invested to maximize portfolio return.

placed in a separate fund held by a third party.

placed with a professional investment manager.

invested to provide a defined benefit for plan participants.

A newly hired Treasurer must establish the organizational structure of the treasury department for ABC Corporation which is a publicly traded multinational organization with sales offices in over 50 countries. There are limited opportunities for trading and hedging activity. The first challenge is to identify the most appropriate structure for the treasury group that will provide control, visibility, economies of scale, and lower operating expenses. What structure should be chosen? *

1 point

Centralized Cost Center

Outsourced Cost Center

Regionalized Profit Center

Decentralized Profit Center

Which of the following short-term instruments is used to finance the import or export of goods? *

1 point

Convertible bond

Government warrant

Bill of lading

Banker's acceptance

What is one chief advantage of issuing short-term securities in book-entry form? *

1 point

The securities cannot be transferred electronically.

The physical exchange of certificates is required.

Transaction clearing can be performed with ease and speed.

Security registration is not required.

Which of the following statements is true about threshold concentration? *

1 point

Wire transfers are initiated on the basis of deposit information.

Daily transfers are often needed to maintain balances at the desired level.

Balances are set and funds above that level are transferred to the concentration bank.

Balances are transferred to the concentration bank after reaching a predetermined level.

Refer to the following information about a company at the end of its fiscal year.; Cash: $1,000; Marketable Securities: $3,000; Inventory: $6,500; Accounts Receivable: $10,000; Shareholders' Equity: $10,000; Accounts Payable: $15,000; Current Liabilities: $15,000; Long-term Debt: $20,000; Net Fixed Assets: $24,500; The before-tax cost of long-term debt is 10% and the cost of equity is 12%. The marginal tax rate is 35%.; What is the company's long-term debt to total capitalization ratio? *

1 point

0.44

0.67

0.73

0.78

A construction company just received a notification from its bank advising it of an altered dollar amount on a check. This notification is MOST LIKELY the result of: *

1 point

the use of positive pay.

the use of controlled disbursement.

automated reconciliation services.

reverse positive pay.

In order to be defined as independent, a corporate director: *

1 point

cannot have owned preferred stock shares in the company.

cannot have a material relationship with the company.

cannot meet regularly with executive management outside of board meetings.

cannot have been an employee with the company during the past three years.

Which of the following is true when a company purchases goods using trade credit from suppliers? *

1 point

The buyer incurs no added cost if it pays on time.

The supplier will charge interest to the buyer.

The buyer should record this as a long-term liability.

The supplier places a lien on the goods sold until payment.

A U.S. firm acquires a large U.K. manufacturer that generates high levels of cash flow in its local currency. The purchase is denominated in British pounds and is financed through the issuance of 10-year, 7.5% U.S. dollar bonds. The U.S. firm will rely entirely on the U.K. manufacturer's cash flows to fund the interest payments on the bonds. What derivative instrument would help the U.S. firm manage its FX exposure? *

1 point

Currency forward

Currency swap

Interest-rate swap

Currency future

A large, nation-wide, retailer of plumbing fixtures is considering implementing ACH technology to improve its accounts receivable processing. Which of the following pre-authorized ACH transactions can the company use for this application? *

1 point

ARC (Accounts Receivable Conversion)

CIE (Customer-Initiated Entry)

TEL (Telephone-Initiated Entry)

WEB (Internet-Initiated Entry)

When projecting the closing cash position, a cash manager must estimate which of the following? *

1 point

ACH credits

Lockbox receipts

Checks in the process of collection

Clearings on non-controlled disbursement accounts

A company has made an investment of $30,000, which matures in 180 days and pays $800 in interest. Which of the following is the effective annual yield? *

1 point

1.31%

1.33%

5.33%

5.40%

What is the MOST appropriate rate used as the discount rate in calculating NPV? *

1 point

Marginal cost of capital

IRR

Cost of debt

Internal transfer rate

All of the following factors influence a company's decision to use electronic commerce EXCEPT: *

1 point

increased accuracy.

increased inventory levels.

increased information flow.

redefined customer and supplier relationships.

All of the following are expected advantages of company-operated remittance processing centers EXCEPT: *

1 point

the company will make availability cutoffs probably missed by other collection alternatives.

the company maintains total control over the collection process.

such facilities may be less costly to operate than bank lockboxes.

customer information may be updated in a timely fashion.

The measurement of the significance of any loss exposure depends on: *

1 point

loss type and loss prevention.

loss response and loss control.

loss probability and loss history.

loss frequency and loss type.

A company has a $300,000 credit line of which $200,000 was the average amount outstanding for the year. The terms of the loan include a 1/2 of 1% commitment fee on the unused portion, an interest rate of 10%, and a compensating balance requirement of 2% of the total credit line. The company's compensating balances are funded from credit-line borrowings. If the company negotiates to eliminate the compensating balance requirement and the average borrowings remain at $200,000, the annual interest rate would be: *

1 point

10.00%.

10.25%.

10.31%.

10.57%.

All of the following statements are true about adjustable-rate preferred stocks EXCEPT: *

1 point

they offer tax advantages to corporate investors.

they have a guaranteed return of principal at maturity.

their dividends are paid before common stock dividends.

their dividend rate is reset periodically.

Which of the following ways of financing accounts receivable requires a company to relinquish control of the type of customer to which it sells? *

1 point

Securitization

Using captive finance subsidiaries

Third-party financing

Unsecured borrowing

ABC company received $890 in service charges. The earnings credit rate = 3.75%, and the reserve requirement is 10%. What balance would the company need to offset the charges in this 30 day month. *

1 point

$454,630

$417,092

$320,840

$288,756

A company is concerned that investor dissatisfaction could lead to a rapid change in its board membership. To prevent this, which of the following strategies should the company employ? *

1 point

Grant shareowners preemptive rights for new shares.

Give shareowners cumulative voting rights.

Stagger the election of its directors.

Allow shareowners to vote by proxy.

A treasurer decides to use notional pooling across wholly-owned multiple legal entities instead of wiring money between entity accounts. What specific section in the company's policy allowed the treasurer to make this decision? *

1 point

Regulatory and legal considerations

Liquidity strategy

Collection strategy

Concentration practices and strategies

When a check is used to move funds through the payment system, which of the following usually MICR-encodes the dollar amount on the check? *

1 point

The Federal Reserve.

The local clearing house.

The bank on which the check is drawn.

The bank at which the check is first deposited.

A portfolio manager wishes to make a short-term investment. His investment policy requires that short-term investments be low risk and secured, have a fixed interest rate and be highly liquid/redeemable prior to maturity. Which of the following should the manager choose? *

1 point

Asset-backed commercial paper

Bank obligations

Commercial paper

Government treasury bills

Which of the following activities creates administrative costs associated with a concentration system? *

1 point

Scheduling cash transfers

Monitoring short-term investments

Reviewing positive pay exception reports

Centralizing the check issuance process

One of the PRIMARY ways the Fed addresses systemic risk is by: *

1 point

assigning passwords and PINs to identify authorized users of its Fedwire system.

establishing intra-day credit limits for ACH originators.

setting minimum reserve requirements for its member banks.

setting daylight overdraft limits for its member banks.

Systemic risk can be caused by which of the following? *

1 point

Bankruptcy of an industrial company

Bankruptcy of an individual

Failure of a community bank

Failure of a money center bank

Merchant XYZ has total credit card sales of $20,000 for one day with an average ticket of $200. The merchant's interchange reimbursement fees are 2% and transactions fees are $0.05. This merchant receives net settlement. Which of the following is the value of the deposit for that day? *

1 point

$19,595

$19,600

$19,995

$20,000

The purpose of cash letters is to: *

1 point

arrange currency deliveries from the Fed.

request payment under standby letters of credit.

collect merchant charge-card sales.

facilitate the clearing of paper checks.

The time from the deposit of a check in a bank account until the funds can be used by the payee is known as: *

1 point

collection float.

mail float.

processing float.

availability float.

The goal of investor relations is to *

1 point

ensure that a company's securities achieve a fair valuation in the marketplace.

ensure equity analysts have all available company information at any point in time.

maintain the company's stock listing on the NYSE.

make sure all shareholders cast a vote at the annual meeting.

A KEY feature of municipal bonds is that they are: *

1 point

exempt from federal income taxes.

issued on a discount basis.

rated by the Comptroller of the Currency.

available through the Treasury Direct Program.

When evaluating candidates who have responded to an RFP for banking services, a highly leveraged company will probably apply a higher weighting to: *

1 point

flexible credit terms at competitive rates.

the ability to customize services.

the cost of switching providers.

the adequacy of internal controls.

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? *

1 point

Technical default

Cross-default provisions

Material adverse change

Total liabilities to assets ratio default

Assuming a 33% tax rate, what is the tax equivalent yield for a taxable investment to be the equivalent of a tax-exempt security with a yield of 4.50%? *

1 point

4.50%

6.72%

6.06%

13.64%

A manager has prepared an analysis of five investment alternatives. Prior to selecting which alternative to invest funds in, the manager calculated the anticipated return for all options. The manager is only going to invest in one alternative. The four investments that are not chosen are: *

1 point

a cost of capital.

a loss of leverage.

an opportunity cost.

a cost benefit.

A French company conducts business strictly within the euro zone (the EMU). Which type of risk is of LEAST concern? *

1 point

Terrorist

Regulatory

Payment

Currency

XYZ Company is considering different methods of concentrating cash from its subsidiary accounts to its main operating account. It uses short-term borrowings with a rate of 7% to fund daily operations, and the reserve adjusted earnings credit rate on its subsidiary accounts is 1%. A review of its bank fees shows that wires (same day transfer) cost the XYZ Co. $7.00 each while ACH debits (next day transfer) cost $1.25 each. If the primary objective is to minimize costs, what must the transfer amount be (rounded to the nearest whole $) to justify the use of a wire transfer instead of an ACH to concentrate the funds? *

1 point

$17,490

$29,982

$34,979

$42,583

Underfunded pension obligations can be reduced by: *

1 point

an upward shift in the yield curve.

higher benefit payments to retirees.

immediate vesting in the defined contribution plan.

higher premiums to the Pension Benefit Guaranty Corporation.

How much should you invest if a project will return $5,000 five years from now and your cost of capital is 10%? *

1 point

$3,402

$5,000

$3,105

$3,705

RAL Industries is a manufacturing company that currently has locations in the United States and Latin America and has just completed an acquisition of a company located in Europe. As a result of the acquisition, they have a large number of financial service providers. In an effort to reduce the number of providers and services used globally, RAL has decided to develop a formal selection process to consolidate its many global banking services. In order to reduce the amount of time the selection process takes, determine which services providers can offer, and the number of providers involved in the process, what should RAL Industries issue? *

1 point

Request for Quote

Request for Proposal

Request for Information

Request for Participation

MCA, Inc. upgraded the Treasury workstation that had been in place for two years and used data from that 24-month period to develop a new short-term forecast. A trend factor was applied to controlled disbursements of 97% on a month-by-month basis and the variance to actual disbursements is less than 1%. Which of the following model validation techniques was utilized? *

1 point

In-sample validation

Documentation validation

Ongoing validation

Comparison validation

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? *

1 point

Issue convertible debentures.

Issue long-term notes.

Issue common stock.

Use retained earnings.

Which statement is typically true about cash dividends? *

1 point

They are an expense to the company.

They are a distribution of profits.

They are based on the value of the company's stock.

They are declared by the chief financial officer.

Which of the following investment instruments is a discount instrument? *

1 point

Banker's acceptance

Yankee CD

Treasury note

Municipal bond

Which one of the following ties a user’s private key to a user’s public key *

1 point

A digital signature

A digital certificate

A digitized signature

A digital token

XYZ Corporation is presently a short-term borrower and uses a revolving line of credit with an interest rate of 7%. The Treasurer would like to reduce interest expense and increase liquidity without renegotiating the line of credit. Which of the following projects should the Treasurer support in order to achieve this objective as quickly as possible? *

1 point

Store Operations believes that an increase in inventory levels will raise sales as the corporation eventually becomes known for its wide selection.

Purchasing is trying to extend terms from net 30 to net 60 with one of their primary vendors. The vendor will agree if XYZ concentrates purchases with them.

Accounts receivable is spending capital to improve its collection system. With the faster collections that will result, it anticipates recovering the outflows over a two-year period.

One large store is being remodeled. When complete, it should generate sufficient additional sales within one year to cover the capital expenditure and produce a positive return on investment.

A company's credit agreements or loan covenants may require: *

1 point

minimum ratings for insurance carriers.

high deductible levels and risk retention in order to minimize premium payments.

outsourcing of the claims approval and payment process to an insurance company.

risk management staff to work directly with underwriters to reduce commission payments.

What is the premium (price) for an oil contract, if the following conditions are present?; LIBOR rate of 5%; Out of the money cost of $3; Strike price is $4; In the money price of $1; Speculative premium of $2 *

1 point

$5.25

$7.35

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? *

1 point

Payment management

Liquidity management

International trade management

Capital budget management

Company X, a US based multi-national, is exploring the option of locating a subsidiary in another country where there has been some historical risk of expropriation of local assets of foreign corporations. Therefore, as part of the risk assessment process the company must specifically quantify the: *

1 point

political risk.

physical security risk.

financial institution risk.

property risk.

Which of the following clears international checks? *

1 point

Correspondent banks

Fedwire

SWIFT

Check truncation

A company has six fraudulent checks clear its primary disbursement account for a total of $7,652. The bank agrees to split the loss with the company to maintain a good relationship. As a condition of sharing the expense, the bank requires the company to establish positive pay on its disbursement accounts or have the company absorb the losses on future fraudulent payments. What type of risk financing technique is the bank using? *

1 point

Crime insurance

Self-insurance

Risk retention

Risk transfer

Which of the following is an important component of corporate governance? *

1 point

The existence of a large number of institutional investors

The activities of independent outside auditors

The existence of a matrix management structure

The level of compliance with GAAP

A cash manager at a U.S. 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 options would be the MOST economically positive for the company? *

1 point

Leave the funds in the account.

Redeem the single payment note.

Prepay administrative expenses.

Transfer funds to the investment account.

A company has decided to manage its short-term investment portfolio in-house. It is looking for enhanced capital gains as well as the ability to sell the instruments on the secondary market at a premium. The investment manager has forecasted the interest rates shown below: Short-term rates (ST); Long-term rates (LT); January: (ST) 0.25%, (LT) 0.27%; February: (ST) 0.28%, (LT) 0.30%; March: (ST) 0.26%, (LT) 0.29%; April: (ST) 0.24%, (LT) 0.27%; May: (ST) 0.25%, (LT) 0.28%; June: (ST) 0.26%, (LT) 0.29%; Which investment strategy should be employed by the company? *

1 point

Passive strategy

Matching strategy

Tax-based strategy

Total-return strategy

All of the following are advantages of a centralized disbursement system EXCEPT: *

1 point

It requires little administrative effort

It allows excess cash to be centrally pooled and made available for investment

It integrates disbursements with a company’s overall cash flows

It increases balances at field banks

A company transmits a payment file of ACH and Fedwire vendor payments to its financial institution to execute. Which article of the Uniform Commercial Code governs these payments? *

1 point

Article 3

Article 4

Article 4A

Article 5

The yield curve is inverted. A creditworthy firm considering alternative debt maturities would MOST LIKELY: *

1 point

enter into a short-term floating rate agreement.

obtain long-term fixed interest rate debt.

roll-over short-term debt at each maturity.

obtain a long-term floating rate agreement.

An art history museum has recently finished renovating its new location. Before the move, the treasurer considers purchasing additional insurance to protect the art during transit. What form of additional insurance should the treasurer choose? *

1 point

Special multi-peril (SMP)

Business interruption

General liability

Difference in conditions (DIC)

ABC Company is considering investing in new production technology. ABC has projected that the investment would add $5,000,000 in additional operating profit and that the resulting balance sheet would show $7,000,000 in long-term debt and $11,000,000 in total equity. ABC has a 34% tax rate and a 10% WACC. Which of the following is the investment's EVA? *

1 point

$1,500,000

$2,200,000

$3,300,000

$3,500,000

Which of the following is subject to translation exposure? *

1 point

A German company with a subsidiary in Spain

A Spanish company with revenues in Euros

A Japanese subsidiary in the United States with U.S. dollar liabilities

A U.K. company that exports goods to the United States

Consolidation and specialization in the financial services industry have made financial institution and financial service provider selection a(n): *

1 point

more important decision process for a treasurer.

less critical decision process for a treasurer.

easier decision process for a treasurer.

unimportant decision process for a treasurer.

A Chicago meat processor is concerned about the volatility of pork belly prices. Which of the following derivative products would be used to fix these prices within a given range? *

1 point

Collar

Swap

Cap

Spot purchase

Which of the following is a negotiable time draft? *

1 point

Commercial paper

Check

Master note

Banker's acceptance

Which of the following is a tool that companies use to obtain a quantitative rating of a financial institution's level of service? *

1 point

Relationship review

Score card

Service agreement

CAMELS rating

A U.S. company decides to enter a new geographic market facing some dominant competitors, but projects sales growth of 40% in its first year due to its superior product line. The company decides to only offer electronic payment methods for settlement of its receivables. A year later, the company's sales volume only increases by 10%, but their average days' sales outstanding of 32 days is the best in the industry. What should the company have considered in its collection policy objectives? *

1 point

Cost efficiency

Customer satisfaction

Performance measurement

Approved collection practices

All of the following are reasons to use a confirmed irrevocable letter of credit EXCEPT concern about: *

1 point

the buyer's ability to pay.

the ability to receive cross-border payments.

foreign currency exposure.

the stability of the buyer's bank.

Which of the following functions is LEAST likely to be part of a cash manager's responsibilities? *

1 point

Funds movement

Bank compensation

Forecasting

Long-term financing

Which of the following can be used for monitoring accounts receivables?; I. Aging schedule; II. Credit terms; III. Days' sales outstanding; IV. Receivables balance pattern *

1 point

I and II only

I and IV only

I, III, and IV only

II, III, and IV only

A consumer is presented with payment options from a merchant when making a purchase. The consumer does not wish to share any information that could be later used in identity theft or fraud, while the merchant requires guaranteed payments within 24 hours with no NSFs or declined payments. Which of the following options would suit both the consumer and the merchant? *

1 point

NACHA's Secure Vault Payments TM

Credit card payment

Direct debit

E-check

The treasury analyst for XYZ Corporation, a small retailer, is trying to forecast daily cash receipts being swept from the store depository accounts. The analyst has been given the data in the table regarding receipts from the last few days. The analyst chooses to use a seven-day simple moving average forecast methodology. What is the amount that XYZ Corp. would expect to receive on Day 10 (rounded to the nearest whole $)?; Day 1: $105,000; Day 2: $97,000; Day 3: $98,000; Day 4: $110,000; Day 5: $106,000; Day 6: $92,000; Day 7: $103,000; Day 8: $100,000; Day 9: $96,000. *

1 point

$99,400

$100,714

$100,778

$101,571

A supplier can improve invoicing float by: *

1 point

renegotiating credit terms.

establishing a bank lockbox.

shortening its order-entry process.

factoring its receivables.

The lockbox receipt records for one 30-day month are provided below. (Day - Calendar Days of Float); Batch #1, 3 days, $20,000; Batch #2, 4 days, $10,000; Batch #3, 4 days, $5,000; Batch #4, 2 days, $15,000; The opportunity costs are 10%. What is the annual cost of float rounded to the nearest dollar? *

1 point

$167

$385

$417

$500

What kind of budget forecasts the cost for investing activities? *

1 point

Operating budget

Sales budget

Maintenance budget

Capital budget

Under a loan agreement, which of the following could be an event of default?; I. Nonpayment of interest when due; II. A material adverse change in the condition of the borrower; III. A debt-to-equity ratio above the limit specified; IV. Shortening the cure period by half *

1 point

I and IV only

I and II only

II and III only

I, II, and III only

A shareholder right found in many corporate charters is the preemptive right which provides: *

1 point

the right to purchase shares of new stock and maintain pro-rata ownership interest.

the right to choose directors through cumulative voting.

the right to prevent the company from setting certain board agenda items.

the right of shareholders to choose the corporation's auditor.

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