Future treasury operations will be affected MOST significantly by consolidation of which of the following?
Company A regularly modifies its capital structure by repurchasing stock. Which one of the following is a true statement?
ABC Company is a national retail company and uses XYZ Bank for its collections and payroll services. XYZ has recently experienced financial problems; what is the greatest risk to ABC Company?
A deck furniture supply company maintains a large inventory during the summer sales season. One of the PRIMARY benefits of this approach is that the company avoids which of the following costs?
Which of the following is NOT a drawback to using ROI as a performance measure?
For a defined benefit plan,
In evaluating alternative capital investments, a company should consider qualitative factors such as:
Which of the following is subject to transaction exposure?
A public company’s risk profile is currently in balance. The management’s mission statement is to minimize stock devaluation. However, it is forecasting a need for working capital in the short term. Which of the following solutions would BEST assist management in accomplishing its mission?
A large mature company with limited growth opportunities (positive NPV projects) achieved abnormally high profits this year. After paying mandatory principal, interest, and taxes, the company has $200 million in surplus cash on hand. Assuming its investor base is most concerned with capital appreciation, which of the following is the BEST option for the company?
A public corporation may value a defined contribution plan highly because it:
Which one of the following ties a user’s private key to a user’s public key?
A bank issues a letter of credit (L/C) and receives a request for payment under the L/C. The buyer notifies the issuing bank not to make payment because there is a dispute over the quality of the merchandise. However, the documents received fully comply with the terms of the L/C. Which of the following statements is true?
A real estate development company has excess cash that it would like to invest in one of its properties:
Property A has shown an ROI of 40%, a residual income of $25,675, and an EVA of $32,678.
Property B has shown an ROI of 45%, a residual income of $27,635, and an EVA of $29,523.
Property C has shown an ROI of 55%, a residual income of $22,658, and an EVA of $30,678.
Property D has shown an ROI of 52%, a residual income of $19,675, and an EVA of $31,523.
In which property should the company invest?
Convertible securities consist of preferred stock anD.
In terms of capital structure, lease financing normally has the same effect as:
Regarding dividends, on which of the following dates would a company's current assets be reduced?
Which of the following is subject to translation exposure?
Which of the following is MOST LIKELY to have a significant impact on the financial condition of an organization?
A telecommunications company receives a profit of $587,542 from its cellular phone production unit in the year after investing $962,870 in a new product line. What is the first year return on its original investment?
A cash manager has determined that the break-even amount for justifying a wire transfer over an ACH for concentration of funds is $145,000. Using a wire instead of an ACH gives the company use of the funds two days earlier to make overnight investments. Based on a wire transfer cost of $10.00 and an ACH transaction cost of $0.70, what is the company’s overnight investment interest rate on a 365-day year basis?
Use the financial statement for XYZ Company in the exhibit to answer this question.
What is the cash flow from operating activities for the current year?
Company XYZ has determined that its weighted average cost of capital is 12.5%. The capital structure of the company is made up of 75% equity and 25% debt. The before-tax cost of debt is 10%. Given a tax rate of 34%, what is XYZ's cost of common stock?
One reason for using a sale and lease-back arrangement in lease financing is to:
A company has a line of credit and a bond trustee agreement with a bank. To prevent a decline in the company’s bond rating from having a negative impact on the company’s line of credit, the bank should have which of the following in place?
Which of the following instruments simplifies the paperwork connected with loans that have multiple advance features?
Which of the following is a ratio that is often used by commercial banks to measure a company’s leverage and does not include the effect of assets that are difficult to value or are NOT easily converted to cash?
What kind of budget forecasts the cost for investing activities?
The MOST common way that companies structure their treasury operations is as a:
Optimal dividend policy is one that does all of the following EXCEPT:
From a buyer’s perspective, which of the following types of float would be eliminated if checks were replaced by electronic payment methods?
Which agency implements monetary policy through purchases and sales of treasury securities?
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?
The treasury management department of a company hires a consulting firm to provide research on how other companies in the industry have structured their treasury operations. This is an example of which practice?
On which exchange is a company’s stock traded on the over-the-counter market?
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?
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?
The company's monthly credit sales are in Table 1 and its receivables collection pattern is in Table 2. 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?
Assume a 90-day quarter.
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?
The year-end income statement for a company is presented in Table 1. The balance sheet is presented in Table 2.
What is the company's return on equity?
The PRIMARY objective of a corporation is to:
Which of the following are KEY issues to be considered when establishing a shared service center (SSC)?
I. Selecting the location
II. Comparing an SSC structure to outsourcing of a process
III. Choosing and implementing the technology for SSC
IV. Choosing the collection bank
Which of the following ACH formats is commonly used for consumer payments such as deposits of payroll?
All of the following are account reconciliation services EXCEPT:
When a supplier uses evaluated receipts settlement (ERS), which of the following statements is true?
An international company would establish a re-invoicing center for which of the following reasons?
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?
In most countries other than the United States, which of the following is used to compensate banks for services provided?
Following the latest round of cost-cutting measures at ABC Corporation, the Treasury Department retained a headcount of 2 individuals. While the analyst was out sick, she gave her password to her Manager so that payments could be released via the bank’s wire transfer system. The Manager sent 3 wires out with incorrect banking instructions. The problem was not identified until the angry suppliers called several weeks later demanding payment. The corporation has not yet recovered the $130,000 sent to erroneous accounts. In this instance, which control failed for ABC Corp.?
Which of the following correctly describes pooling as practiced in the European cash management environment?
In a large company, the person who normally oversees both the treasury and the accounting functions is the:
What step can a cash manager take to validate a cash flow forecast?
A company transfers funds from its remote accounts by ACH with a one-day settlement and is notified of a same-day credit of $100,000 in one of its accounts. A wire transfer costs $27.75 incrementally. Assuming a 360-day year, which of the following is the minimum rate of interest that must be earned on these funds to justify the cost of a wire transfer?
Which two of the following are necessary to calculate average collected balances?
I. Deposit float
II. Reserve requirements
III. Ledger balance
IV. Earnings credit rate
All of the following are common consumer-to-corporate international payment mechanisms EXCEPT:
Which of the following factors will allow a company to decrease the amount of collected balances required to compensate its bank for services?
Which statement is true about private placements compared to public offerings?
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?
Under an operating lease, possible benefits to the lessee include which of the following?
I. It requires no initial capital outlay.
II. It can be structured as an off-balance-sheet item.
III. It can offer tax advantages.
In capital budgeting, a company might risk adjust which of the following?
Trade terms are renegotiated under e-commerce in order to:
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.
What is the effective annual interest rate on the net usable funds?
The relationship between debt and equity in a company's capital structure is called:
Merchant MNO’s sales for the day total $20,000. Fifty percent are credit cards, split between Card Red and Card Blue respectively, at 65% and 35% of the card volume. The average ticket is $50. Fees paid are 2% for Card Red and 2.5% for Card Blue and a fee of $0.05 per transaction. What are the fees that MNO will pay to the issuing banks?
A merchant, wanting to accept credit cards as payment method, will negotiate its fees with which of the following participants?
A company has a beginning cash balance of $50,000. Its weekly cash flow forecast shows the following information for the next three weeks.
Which of the following statements is true?
A company purchases a machine tool with an expected life of 3 years. Under the accrual accounting method, the equipment would be treated in which of the following ways?
A pizza restaurant chain maintains separate accounts at bank branches near each of their 1,067 restaurants to handle the deposit of cash received. Early each morning, the company’s point-of-sale system electronically transmits collection totals from the previous day to its main computer. ACH debits are then initiated to concentrate the funds from the local accounts to the concentration account the following day. Recently, several of the ACH debits have been returned for insufficient funds because deposits weren’t being taken to the bank on a timely basis by the local employees. Without increasing staff at the restaurants, what could Treasury do to prevent this from happening and avoid overdrafts at the local banks?
A U.S. bank regularly transmits international payments to European based XYZ Bank. The payments flow through an intermediary bank. Recently regulators audited the intermediary bank and discovered the bank may be unknowingly facilitating illegal activities. What payment method was MOST LIKELY used?
A new retail chain has decided to offer 3 payment methods: cash, cards and checks. It was determined that card payments would be the biggest sales driver and projects have been scheduled accordingly. To be in line with this strategy, which of the following should be the priority?
All of the following are reasons to use a confirmed irrevocable letter of credit EXCEPT concern about:
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?
Which of the following is NOT one of the three goals of a disbursement system?
A company can dispute any check alterations within how many days after the bank statement has been sent?
A digital signature cannot be forged if:
Companies that seek out other companies that have successfully redesigned their operations are engaging in a process called:
A company has $75 million in adjustable-rate debt, $25 million in fixed-rate debt, and $50 million in accounts receivable. If the company is concerned that interest rates will rise, which of the following would be the BEST interest rate derivative?
A company has transferred all treasury functions to a new office overseas. When preparing the disaster recovery plan, the treasury manager seeks to identify the mission critical functions and then determine what risks the plan should address. Which of the following risks should be the focus of the Disaster Recovery Plan?
A trader of ABC Bank executed and audited his own trades. Assigning these two functions to the same person introduced which one of the following risks to the bank?
The lockbox receipt records for one 30-day month are provided below. The opportunity costs are 10%.
What is the annual cost of float rounded to the nearest dollar?
Refer to the following information about a company at the end of its fiscal year.
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?
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:
P-card issuer: $25,000
Payroll: $125,000
Bond interest payment: $200,000
Vendor payments: $260,000
Utilities: $50,000
The cash manager does not have a way to confirm the receivable amounts deposited at the bank. The suppliers are threatening to stop shipments due to the delay in payment and the loss of supplier shipments would threaten the company’s just-in-time production. What concern should the company have?
Each of the following statements is true of both defined benefit plans and defined contribution plans EXCEPT:
Included in the CAMELS rating system for financial institutions are all of the following EXCEPT:
A bank employee programs an internal payment system to transfer half a cent of each transaction to her personal bank account. What type of risk does this behavior illustrate?
A company may choose to outsource some of its cash management processes to:
An accounts receivable manager has been asked to accelerate cash into her company by offering trade discount terms to its customers. Her company's cost of capital is 11%. If she offers terms of 2/10, net 30 on a $50,000 invoice, what is the present value to the company if the customer accepts the discount and pays early?
Which of the following credit terms would be MOST appropriate for a seasonal product that a manufacturer wants to sell to a retailer during the product's off-season?
An auto manufacturer experienced a decline in sales, an increase in inventory, and an increase in labor costs over the past two months. With all else being equal, what is the MOST LIKELY impact to the company's balance sheet?
When a company must determine the optimal mix of long-term borrowings versus common equity, it is making which of the following types of corporate financial decisions?
A company has a high value for its current ratio. What does this suggest in terms of liquidity and risk?
All of the following would encourage a company operating nationwide to develop multiple banking relationships EXCEPT:
Operational risk is defined as the risk of direct or indirect losses resulting from external events or failure of internal resources. As treasury departments maintain legacy systems that must be integrated into more complex technology, one would expect that:
Which method of financing would a company use to establish a wholly owned subsidiary to perform credit operations and obtain accounts receivable financing for the sale of products?
Which of the following are examples of covenants in loan agreements?
I. Financial ratios
II. Corporate resolutions
III. Borrower limitations
IV. Borrower obligations
XYZ Company is a net borrower. Its cost of funds is 5.0%, its earnings credit rate is 3.0%, and the reserve requirement is 10%. Average service fees are $50,000 per month. Its average ledger balance is $2,000,000, and its average collected balance is $1,000,000. What are the collected balances required to pay for services during a 30-day month?
In recent years, there has been a sharp increase in the use of technology for certain financial transactions. Which of the following has increased dramatically over recent years?
ABC Company is a net borrower with a weighted average cost of capital of 11.5%. What kind of bank fee arrangement is it likely to prefer?
Which two of the following are optimal uses for short-term excess cash?
I. Pay down credit lines.
II. Make overnight investments.
III. Repurchase stock.
IV. Make capital expenditures.
A company offers credit terms of net 40, with an opportunity cost of 12% to a customer. What discount would have to be offered for the customer to be indifferent between paying on Day 40 and paying with the discount on Day 10?
Under the strict cash basis of accounting, revenue is recorded when:
The before-tax cost of long-term debt is 10% and the cost of equity is 12%.
The marginal tax rate is 35%. The company's weighted average cost of capital is:
A commercial paper issuer who repays investors earlier in the day than it receives funds from new investors often creates which of the following?
The amount of the discount required to renegotiate credit terms in EDI depends on which two of the following?
I. Present value impact of the timing change
II. Credit risks involved
III. Revolving credit agreements
IV. Transaction costs savings
Companies implement EDI in order to realize which of the following benefits?
I. Decreased error rates
II. Decreased order lead time
III. Improved productivity
IV. Improved cash forecasting
All of the following are basic considerations for balance compensation by a company EXCEPT:
Which of the following should NOT be a consideration when setting an optimal dividend policy?
The following information about a company is at the end of its fiscal year.
The before-tax cost of long-term debt is 10% and the cost of equity is 12%. The marginal tax rate is 35%. The company's current ratio is:
A multinational firm headquartered in Germany expects the U.S. dollar to depreciate relative to the euro in the next few weeks. To counteract this expectation, the firm will lead payments from its only subsidiary, located in New York City. What situation could the firm encounter by employing this practice?
For days’ sales outstanding to be a meaningful method for evaluating the effectiveness of a company's receivable collections, it is usually compared to the:
Article 4 of the Uniform Commercial Code (UCC) refers to a company's duty to report unauthorized payments or alterations within how many days of statement availability?
Which one of the following is true of capital repatriation for multinational companies?
Refer to the data set. An analyst at XYZ Company was asked to determine if the company should use a lockbox provider for its retail payments. The analyst determined that the company's annual sales of $324,000,000 were recorded evenly throughout the year. The company receives 30,000 checks annually. Total dollar-days float without the lockbox is $76,500,000 and the annual opportunity cost is 5.5%. The industry's average opportunity cost is 6.0%. Assuming a 30-day month, the net savings realized by using lockbox services would be:
Subtracting dividends from net income available to common shareholders is reflected as a change to which of the following balance sheet items?
The treasury department of a company uses a hosted treasury management system (TMS) to manage cash, debt, and investments. Because the system is hosted, the company must monitor the financial service provider (FSP) to ensure there are appropriate controls in place to mitigate any operational risk. How can the FSP assure the treasury department that they have effective controls in place to mitigate operational risk?
An employee is considering two investment strategies for his 401(k) plan:
Strategy #1: Invest all contributions in a money market fund that has returned 5% annually
Strategy #2: Invest all contributions in a stock fund that has returned 9% on average, although annual returns have varied between (2%) and 12%
Assuming that the employee makes a one-time investment of $12,000 and that both strategies continue to perform as they have historically, how much more or less could the stock fund be worth after one year compared to the money market fund?
A company is looking to outsource its accounts payable function. What KEY requirement would the treasurer include in the outsourcing policy?
A subsidiary of a large multinational organization was set up in an Asian country. The controller of the organization wants to determine the functional currency of the subsidiary. Which statement correctly describes what determines the functional currency of the subsidiary?
Which of the following is a service typically provided by an investment custodian?
ABC Company is an energy-holding company which owns a number of regulated power utilities that have monopolies in different regions. The majority of the holding company’s income is realized from investment portfolios. The company has done well and is going to report its overall performance to the public. What performance evaluation processes should management use to measure portfolio performance?
A company is a net borrower and generally invests in short-term instruments consisting of money market funds, compensating balances, and commercial paper. The treasury manager wanted to increase returns for the organization and invested a large balance in bonds. The investment locked cash up for a longer period, causing additional draws on the revolver, and the bond values began to decline. What should the company have had to prevent this situation?
The board of directors of ABC Corporation has asked the CFO to consider adopting the direct method in preparing cash flow statements instead of the indirect method currently in use. Why would the board of directors promote this shift?
Treasury uses which of the following internal sources of information in its daily operations?
Which of the following is an intangible asset?
The treasurer of XYZ Company reached out to its local banker for a $7MM line of credit. The banker is able to offer the facility for an all-in interest rate of 6% for a service fee of 45 basis points. Additionally, there is a commitment fee of 75 basis points for the unused portion. XYZ uses $5.5MM of the facility in the first year. What is the annual borrowing cost for XYZ (round to two decimal places)?
Which of the following is a major objective of treasury management?
A company that has an unusual spike in earnings in any given year is MOST LIKELY to declare which type of dividend?
In terms of targeting a company’s capital structure, when is it beneficial to assume a high level of financial risk?
An investor purchases securities that mature beyond the date when cash is required. The investor intends to sell the investment to meet the cash flow need. This strategy works best when:
A company pays its vendors with the following methods:
2,600 checks, averaging $1,000 each, issued on the 15th of the month
1,000 ACH payments, averaging $2,000 each, on Wednesdays
500 ACH payments, averaging $500 each, on the first Monday of the month
10 wires on the last day of the month for approximately $260,000 each
If the company has a daylight overdraft agreement, which of the above presents the highest single-day credit risk for the bank if the company enters bankruptcy?
Company ABC located in the United States wants to collect from an international customer. Which collection method provides both the buyer and the seller with the best combined security for both parties?
Exhibit:
If a company had the above activity at a bank for the previous month (a 31-day month), the bank was overcompensated by approximately:
BF Company, a manufacturer of food products, reported financial information shown in the table below for the end of the year.
BF Company is subject to covenants under its revolving credit facility. It is in compliance with which of the following?
A multinational corporation (MNC) moving all of its Mexican peso-denominated revenues into a lower tax-rate jurisdiction could adopt any of the following treasury practices EXCEPT:
Which of the following is an example of a financial derivative?
Pricing distortions, limited risk-sharing options, and capital controls are characteristics of:
Which of the following types of risk is considered an internal operational risk?
A company has entered into a loan syndication agreement with four banks. The agreement states the company must maintain certain covenants, and a breach of any covenant will terminate the loan immediately. What is the BEST course of action for the treasurer?
A Treasury Management System (TMS) is used to:
Which one of the following is the MOST common theoretical model to predict optimal capital structure?
Which of the following would fall under an organization's account resolutions?
A long-term treasury department employee notices that the director of internal audit has the authority to process payment proposals. The employee notices that a $1,000 transfer was made to a vendor with the director's log in. What laws will ensure that the treasury department employee will not suffer retribution if management is notified of this transaction?
Which scenario provides the BEST example of an agency problem?
To monitor financial institution service quality, a company would use all of the following measures EXCEPT:
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?
An intern was hired by the Vice President of Accounts Payables to process the electronic payments that come through the bank. The intern is responsible for manually entering payee information into the system at each step of the process. The VP directed the intern to enter the information as fast as possible without mistakes to optimize the number of transactions that could be processed. Instead of manually entering information the VP should have utilized:
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?
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?
PFA Corporation has used regression analysis based on historical data to determine the estimated portion of dollars of checks issued that will clear on any given business day.
If PFA issued $150,000 in checks and $7,500 worth of checks cleared on day 5, what value of checks will be estimated to clear on day 4?
QRT Corporation uses exponential smoothing in its cash flow forecasting model. Five days are used to calculate the moving average forecast.
If the value of the smoothing constant is .60, what is the exponential smoothing forecast for day 7?
XYZ Corporation’s current ledger balance of the controlled disbursement account is $1,286,500. Based on the information in the table,
what will the corporation's available balance be at the end of today?
The Treasury Manager is forecasting sales based on historical data. It was observed that sales decreased sharply in December last year, normally a high sales volume period. Further investigation indicated that a severe winter storm was experienced across the Southeastern United States. How should this event be classified in the forecast when considering the sales trends?
Which of the following is a component of a company’s operating budget?
The Treasurer of a company would like to establish an investment policy for the organization. One objective that should be included in the investment policy that would BEST allow the organization to limit its exposure to a particular market sector would be to:
XYZ Company is a fairly new and high growth company funded by venture capital. Which of the following performance measures is it MOST LIKELY to use?
An individual has just inherited several million dollars and has decided to purchase the stock of a telecommunications company to diversify his portfolio. Before purchasing shares, he would like to do some company-specific research to determine which company to select. Examples of the information the individual wishes to obtain are financial statements and disclosures, company organizational structure, code of conduct, pending litigation, and profiles of the board of directors. Who would be the BEST person to contact to obtain all this information?
A publicly held U.S. company has reported at the beginning of the year that it expects to increase shareholder value by 5%. The current expectations are for interest rates to remain steady with a decline in fourth quarter. Treasury policy requires that investments be 90 days or less and investment grade. How should the company invest excess cash to support this goal?
A company has grown quickly in the euro zone market. It wants to maximize its excess cash. Which would be the BEST method of concentrating funds?
A company’s Chief Financial Officer assigns a team reporting to the Treasurer to restructure the company’s complex debt instruments and equipment leasing arrangements. The team executes the required settlement transactions using wire payments to facilitate the new debt structure, and in the process violates the lending requirements of the company’s bank. What should the Treasurer have done to prevent the violation?
Based on the following information, how much money will XYZ Company owe the bank for monthly service charges after the earnings credit is applied?
Average Ledger Balance $500,000
Deposit Float$10,000
Reserve Requirement10%
Earnings Credit Rate5%
Monthly Service Charges$5,000
Days in month30
Company GRA has retail locations in remote areas of Montana. All banking options within the area, deemed a safe distance for making cash deposits, fail the counterparty risk assessment. Deposits would include both cash and checks. In order to achieve immediate availability of funds, what deposit method should be utilized?
A portfolio manager would like to purchase U.S. 50 million of 10-year notes 3 months from now, but has heard news that the Federal Reserve will start a purchasing program of longer term treasuries that will include 10-year notes. The purchase program would likely cause a lowering of market interest rates. The manager would also like to avoid having to use margin on a daily basis. To remove the price risk that may be associated with the Federal Reserve purchasing program, the portfolio manager would MOST LIKELY enter into an:
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?
The Cash Manager of ABC Logistics, Inc. sets a daily cash position by noon. All departments have been given an 11 a.m. cut-off for presenting wire requests and 2 p.m. for ACH requests. A wire request came in at 3:30 p.m. to make an insurance premium payment, in order to receive a discount. What liquidity reserve requirement is impacted?
Company XYZ offers a retirement plan wherein the value of the plan’s assets and liabilities is measured separately. The plan’s funding and valuation can have a significant impact on the financial condition of the company. Company ABC offers a retirement plan wherein the amount owed to the participants at retirement is based solely on the account balance at the time of withdrawal with participants often bearing the responsibility for managing the investments in their account. Which of the following BEST describes the above two retirement plans and which act governs them?
While revising the investment policy, the CFO performs a sensitivity analysis for the company’s cash flow from investments, and identifies that increasing the maximum dollar value for bond purchases will improve returns by 10% on average, all other variables being equal. What issue will the CFO now need to address in the investment policy?
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?
An analyst at XYZ United is in charge of setting up the bank accounts. Fraud is a major concern due to the analyst’s past experience with previous employers. The analyst has estimated that the company will earn 3.7% on surplus cash. Surplus cash must be invested in short-term investment grade investments. The company’s closest competitor earned 4.1% for its surplus cash in its latest fiscal year. What bank service should the analyst use to maximize the company's surplus cash?
Why would a company establish a short-term credit facility?
Which institution or accord was approved in 2009 to strengthen the regulatory capital framework for banks by focusing on minimum capital requirements, supervisory review and market discipline?
A U.S. company’s pension plan is managed by an investment management firm, headquartered outside the United States. The investment management firm outsources the accounting for the plan to an organization on the Office of Foreign Assets Control (OFAC) sanctions lists and the firm does not advise the U.S. company of this fact. A financial loss in the pension plan is later realized due to the mismanagement of funds. When establishing its contract with the firm to protect itself from losses in the pension plan, the company should have:
Company ABC is a restaurant chain that has enjoyed a surge in customers’ dining with not much of a profitability increase in the last couple of years. Following a bad restaurant review, customer traffic deteriorated with not much change in profitability. Which of the following BEST describes the cost structure of the company?
The School of Cash Management is dealing with a large bank that has been highly rated by Moody’s and S&P. The School has a purchasing card program in place and is not using a highly secure student registration data base. Both the School and the bank have highly automated payment processes. Based on the automation factor, the School should be MOST concerned about which of the following types of fraud exposure?
XYZ Bank would like to conduct some foreign exchange transactions with JKL Bank. JKL isn’t the most liquid and could have some credit risk. XYZ Bank should suggest which of the following in order to eliminate risk?
The Treasury Manager of a chain of department stores wants to develop a medium-term forecast. Management plans to open two new stores, and anticipates same-store sales to increase by 15%. Which of the following items can be predicted with the highest degree of certainty?
Company XYZ is a manufacturer of industrial equipment and has enjoyed a large percentage increase in profits from a small increase in revenues. Sales recently plummeted resulting in steep decline in profitability. Which of the following BEST describes the cost structure of the company?
Company X has asked its banking partner for a recommendation on which type of bank account would be best if it has excess funds that are not required for daily cash management. The company determined the excess cash flows by using the short-term cash forecasting distribution method. Company X will require a return on these funds. Which account is recommended?
A treasury manager has $5 million that is not needed for 6 months. The treasury manager has decided to invest the funds in a liquid instrument, using the current portion of a 5-year AA rated corporate bond that is subject to U.S. Securities and Exchange Commission (SEC) regulations. In what market would the treasury manager purchase this investment?
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?
The Treasurer of PJB Company is in charge of implementing new treasury management software. Without issuing any RFPs, the Treasurer hires a consulting company to install the software and program it to suit the company’s needs. The Treasurer is responsible for approving the consultant’s invoices for payment. Through conversation, the CFO discovered that the Treasurer’s relative is one of the partners at the consulting company. The Treasurer was immediately terminated. What did the Treasurer MOST LIKELY violate?
A firm’s air conditioning unit breaks down unexpectedly and must be replaced immediately. What type of liquidity requirement is this an example of?
What type of tax does a multinational auto manufacturer commonly pay in foreign countries at each stage of a vehicle’s production?
Which of the following is true about disbursement ZBAs?
When a company creates future receivables and/or payables that are denominated in a currency other than its home or functional currency it is faced with:
All of the following are advantages of forward contracts EXCEPT they:
An L/C in favor of a U.S. exporter is issued by a bank in an emerging-market country, and it is confirmed by the exporter’s bank. What risk is reduced for the U.S. exporter?
Financial ratios may provide an inaccurate forecast of a company's performance because they are:
ABC Company, a U.S. company, has an overseas customer, XYZ Inc., who wants to purchase $3.1 million of equipment from ABC Co. XYZ Inc. wants to structure payment by paying 10% at time of order, 40% at time of shipment and the remaining 50% at time of receipt of the equipment. The last time XYZ Inc. purchased equipment from ABC Co. they never paid the final 50%, claiming the equipment did not work properly. Which of the following can ABC Co. use for this transaction to guarantee payment?
Companies in the U.S. with a nationwide over-the-counter/field bank collection and concentration system often deal with:
A company wants to implement more control over its cash management system. Which aspect of the system is the most susceptible to external fraud?
Which of the following techniques would MOST accurately predict a company's daily cash position?
Contingency plans often focus on the business supply chain, ensuring that customer service is maintained. The financial supply chain, which is equally critical to the plan, should address:
A wholesale lockbox system does which of the following?
When will a depositor receive ledger and collected credit for a western check deposited at 2:00 P.M. Wednesday?
Ledger Credit - Collected Credit
At the time of the initial debt contract, the only way debt holders can protect their interests effectively is to establish certain provisions or covenants designed to:
The MOST important tool the Federal Reserve Board has for influencing the amount of reserves in the banking system is:
Which of the following institutions would be regulated by the Office of the Comptroller of the Currency (OCC)?
A U.S. company is selling product for US$10,000 to a Canadian company with payment in Canadian dollars. The exchange rate has been booked at C$1.45/US $1 for payment upon delivery in 15 days. The Canadian dollar is forecasted to weaken within this period. This is an example of A.
A manufacturing company has no liquidity and needs to purchase additional inventory in 60 days. Which of the following would have helped the company plan for this situation?
Which of the following factors would the cash manager consider when deciding whether to make a payment via Fedwire or ACH?
1. Cost of the payment
2. Payment due date
3. Availability of customer's funds
4. Loss of float
U.S.-based manufacturing Company XYZ is looking to deliver finished goods to ABC Company in a developing nation. The credit department wants to ensure collectability and has asked the treasury department for guidance. The desired solution may impact days sales’ outstanding but will have the lowest credit risk to Company XYZ. What will treasury recommend?
Since the inception of ABC Company's pension plan, 1,500 employees qualified and were paid pensions of $500 million after retirement, of which 700 employees were those who earned $110,000 or more and received $200 million in pension benefits. When the company filed for bankruptcy in 2010, the IRS claimed back taxes from the company stating that the pension plan was not qualified under ERISA. On what basis was the IRS MOST LIKELY making its claim?
Multinational corporations repatriate funds from foreign operations through which of the following?
ABC Company offers trade terms of 2/10 NET 30. For several reasons, ABC has decided to eliminate the requirement for a letter of credit from one of its customers. If ABC puts the customer on open book credit, what is the MOST LIKELY outcome?
Traditionally the primary source of operating risk in the area of external theft or malfeasance has been related to:
The term "factoring" refers to a:
Which of the following is a regulation that is having a major impact on the treasury profession?
If ¥120.14 = U.S.$1.00 and € .7564 = U.S.$1.00, how many ¥ = €1.00?
A company that has facilities in different states and wants to control funding and facilitate check cashing would use which of the following?
A cash manager is responsible for a small subsidiary that has significant funds but only writes one check per month. Which of the following types of accounts would the cash manager use for this subsidiary?
One reason for charging management fees to subsidiaries is to:
If the Federal Reserve wanted to stimulate a sluggish economy, it could do so by:
Which section of the statement of cash flows includes items that represent the cash inflows and outflows related to the daily functions of a company?
A company plans to perform an A/R cash analysis based on the following sales information:
60% of sales are collected within two months after the sale. After three months, $135,000 of January's sales has been collected. What was the percentage of January's sales collected in April?
When a foreign subsidiary pays a dividend to its parent company the transfer of funds may be subject to:
The primary bank for a major multinational company would use an overlay structure for euro zone cash concentration under which of the following circumstances?
Which of the following cash concentration transfers is MOST LIKELY to result in a bank ledger overdraft?
Which statement is typically true about cash dividends?
Systemic risk can be caused by which of the following?
A banker's acceptance can be described as all of the following EXCEPT:
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
Components of a field banking system include which of the following?
I. Local bank
II. Concentration bank
III. Lockbox bank
Which of the following statements is true about lockbox network systems?
Which of the following short-term instruments is used to finance the import or export of goods?
Which of the following instruments is sold at multiple price bid auctions?
A major toy retailer operates 65 retail stores throughout the Midwest. Which of the following credit terms is MOST LIKELY to be offered to this company by its suppliers?
In analyzing the costs for services among several banks, a cash manager should compare all of the following EXCEPT the:
Which of the following are basic security issues to be considered in evaluating a treasury management system?
I. Data recovery
II. Anti-virus protection
III. Database access controls
IV. Data integration
Buying a security with the intent of selling it prior to its maturity date to increase the return is an example of:
Which of the following is an advantage of a decentralized disbursement system?
Which of the following contributes MOST to the marketability of a security?
The term "collection float" is defined as the delay between the time the payor:
All of the following are differences between Fedwire and ACH EXCEPT:
Which of the following clears international checks?
The renegotiation of trade payment terms in an e-commerce environment should include which of the following?
Which of the following are commonly used for financing accounts receivable?
I. Factoring
II. Issuing credit cards
III. Revolving bank loans
IV. Letters of credit
A residential mortgage company that wants to collect monthly payments from customers electronically via the ACH would initiate:
Which of the following statements is true about futures contracts?
A company that is issuing a new class of stock would use the services of a(n):
The process by which a bank or insurance company guarantees the debt obligation of a borrower is referred to as credit:
Which of the following statements is true about threshold concentration?
Which of the following functions is LEAST likely to be part of a cash manager's responsibilities?
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 manufacturing company selling engines and other mechanical equipment, with invoices averaging $15,000, would use which of the following systems?
Which of the following is NOT characteristic of commercial paper with a term of less than 270 days?
A cash manager invests in Treasury bills for which of the following reasons?
The credit management function is responsible for:
A company has a $2 million line of credit requiring a 5% compensating balance on usage. For the next year, the company projects a usage of 75% and a 10.375% interest rate. If the balance requirement is eliminated, by how many basis points will the company's effective interest rate be reduced?
The time between receipt of a mailed payment and the deposit of the payment in the payee's account is known as:
Which of the following is responsible for examining national banks?
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
The future value of $60 invested at 8% compounded per year for three years is:
Treasury management systems and ERP systems allow companies to do all of the following EXCEPT:
One example of increased use of electronic payments for retail businesses to convert customer checks to cash at the counter more quickly is:
Loss exposures related to treasury management may include which of the following?
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?
Company ABC, with a current debt rating of BBB- from Standard & Poor’s, is negotiating a new revolving credit agreement with its lenders. The company anticipates closing on a small acquisition within a year of executing this new agreement and would like maximum flexibility to determine its capital structure. The company is MOST concerned about the lenders’ inclusion of A.
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:
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?
A small regional bank is losing market share in fiduciary services and the CEO has decided to scale back the trust department. Which of the following is considered a core service of a trust department?
An analyst at XYZ Company was assigned with determining if the company should start to use a lockbox provider for its retail payments. The analyst determined that the company’s annual sales of $324,000,000 were recorded evenly throughout the year. The Company receives 30,000 checks annually. Total dollar-days float without the lockbox is $76,500,000 and the annual opportunity cost is 5.5%; assume 30-day month. The industry’s average opportunity cost is 6.0%. Using the information in the table, what would be the net effect of using the lockbox?
Which of the following is sought from a typical cash management services Request for Proposals (RFP)?
Which of the following is true of return on investment (ROI)?
A retail brokerage firm is MOST like which one of the following types of financial institutions?
A company in the market to purchase a treasury management system (TMS) has issued a request for proposal to evaluate various vendors. One of the evaluation factors focuses on the long-term viability of the vendor. The company may have to choose between an untested new vendor with a superior product and an established vendor with an incomplete product suite. This dimension of the RFP is measuring what type of risk?
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
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:
A treasury manager at a multinational manufacturing corporation assigned a team of analysts to re-engineer the company’s FX exposure management program. Which of the following alternatives would BEST accomplish this objective?
Which of the following is a tool that companies use to obtain a quantitative rating of a financial institution’s level of service?
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?
A company which experiences increased business volumes but a minimal increase in profitability MOST LIKELY has:
A company is looking to improve its collection rate of returned checks. If the company implements re-presented check entry (RCK) with its bank, it might see a reduction in what type of returned items?
Which of the following actions would the CFO of a Canadian multinational conglomerate MOST LIKELY take to repatriate profits from its international subsidiaries?
All of the following are examples of treasury management system transactions for liquidity management EXCEPT:
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?
Private companies usually go public by making an initial public offering. What is the term for offering subsequent shares in the market?
A company is evaluating its employee healthcare expense and payroll applications. If the company wishes to provide maximum convenience to its employees, which payment method is the BEST choice?
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?
Which of the following would be true for a company with high operating leverage?
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:
Which investment strategy should be employed by the company?
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?
A bank is evaluating the credit risk for a company seeking to optimize costs and originate a high volume of outgoing ACH payments. What is the BEST provision the bank should establish to control its credit exposure?
Which of the following is generally NOT a benefit of financial risk management?
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?
Which of the following is a true statement about operating leverage?
XYZ Inc. has limited cash flow, total liabilities to total assets greater than 52%, and a high WACC. To help meet the goal of lowering their WACC, the company plans to issue several million dollars of private equity to the chairman of the board. If the company proceeds with this plan, the company may:
Usually, corporations receiving dividends from another corporation can exclude 70 percent of dividend payments from income for tax purposes as long as the stock is owned for at least:
Company ABC has a concentrated investor base consisting primarily of large institutional shareholders. It would like to increase its number of smaller shareholders using the most cost effective method of raising capital available. What should Company ABC do to accomplish this goal?
To strengthen outside auditor independence with regard to publicly held companies, the Sarbanes-Oxley Act requires that:
Treasury policies should be approved by the:
The auditors of a private college are examining and auditing the college’s financial statements. The statements are not presented in accordance with GAAP. What should the auditors do?
A large U.S. company is planning to fund its Canadian subsidiary. Currently, the Canadian dollar is trading at CAD 1.25 per U.S. dollar, and the U.S. dollar is expected to depreciate in the near term. To manage this FX exposure, what technique should the company implement?
A company enters into a cash flow hedge to offset fluctuations in the value of foreign currency transactions occurring in two years. How should the company record the gains and/or losses on the cash flow hedge in the current year?
A U.S.-based electronics company that buys components from one of its foreign subsidiaries at a price above market is likely to:
If a corporation pays 70% of its current earnings to its stockholders in the form of cash dividends, the remaining 30% kept by the company will cause a(n):
A company determines that no combination of risk control or financing techniques will produce an adequate, risk-adjusted rate of return on manufacturing a new product. It decides to discontinue the product line. This is an example of:
Which of the following statements BEST applies when evaluating fees in an RFP for bank services?
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:
The combination of difference in condition (DIC) insurance and umbrella insurance:
Net working capital is defined as:
An employer wishing to reduce operating income volatility would MOST LIKELY offer what type of retirement option to its employees?
An internal auditor discovers that employees can enter and approve their own wire transfers. This practice violates what internal control?
Which function involves evaluating alternative projects in relation to one another and in relation to the company's cost structure?
Two critical factors in determining an operational risk management strategy for a company are:
A buyer receives an invoice from a supplier that offers discount terms of 3/10, net 60. What is the effective cost of discount?
A company’s credit agreements or loan covenants may require:
An accounts payable manager has been mandated to accept all trade discount opportunities with an effective cost of discount above 25%. An invoice has been presented and approved for payment with terms of 3/5, net 30 days. What is the difference between the effective cost of discount offered, and the 25% rate set by the company?
A U.S. based multinational company is filing its U.S. tax return and notes that its U.K. subsidiary had pre-tax income equal to $1 million. The U.K. subsidiary paid an effective tax rate on this income of 40%. If the U.S. tax rate is 34%, what will be the amount of the foreign tax credit on the U.S. tax return related to the U.K. income?
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?
Which of the following must be considered when designing the basic framework for a cash management system?
Company XYZ's government relations team has done a poor job in maintaining and nurturing its relationship with the local government. Because of new business ventures it is pursuing, the company needs a method that will help it monitor and collect international accounts receivables between subsidiaries. What technique is more suited given its situation?
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 the unused portion of the line
Interest rate on advances is 1-month LIBOR plus 4%
1-month LIBOR is currently 2%
What is the annual interest rate on the line of credit?
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 regional physicians’ group is looking for an alternative to liability insurance to help protect against potential future liability claims. Which method would BEST serve its need to protect against catastrophic losses?
When evaluating candidates who have responded to an RFP for banking services, a highly leveraged company will probably apply a higher weighting to:
The rate of interest commercial banks charge their best credit rated customers is called the:
Under Section 404 of the Sarbanes-Oxley Act, management must state its responsibility for which of the following?
A seller’s cost of capital is 12%. The average credit sale is $200,000, and the credit terms are 2/10, net 30. What is the present value of receiving full payment on day 30?
A main characteristic of a company with regional offices using a centralized treasury function is:
A treasurer has been advised that his privately held company has just lost its largest customer, which will have a significant impact on earnings. The treasurer applies an aggressive working capital strategy. Presently, the yield curve is upward sloping. Given this information, the treasurer should ensure that the company has:
Consolidation and specialization in the financial services industry have made financial institution and financial service provider selection a(n):
Which of the following could be considered a weakness of a forecast derived by regression analysis?