CTP Certified Treasury Professional Question and Answers

Given the above information,

if the risk manager adds a tank at its second facility, what loss control technique is being used?

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?

Making payments through electronic payments networks can be a part of a treasury management system’s functionality, but it is subject to numerous constraints. Which of the following is a true statement of those constraints?

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

A company which experiences increased business volumes but a minimal increase in profitability MOST LIKELY has:

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?

Using a digital certificate when accessing a financial services provider is one way to reduce what kind of risk?

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

PTC Corporation has determined that the threshold amount for initiating a wire transfer vs. an ACH payment for concentrating funds is $60,225. Wires cost $9.00 and save one day of float. If the opportunity cost is 5%, what is the cost of the ACH payment?

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?

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

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 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?

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?

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

The exchange of a fixed interest rate cash flow for a floating interest rate cash flow with both interest rates in the same currency is an example of:

The combination of difference in condition (DIC) insurance and umbrella insurance:

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?

An airline wants to lock in the price of the jet fuel it needs to purchase to satisfy the peak in-season demand for travel. The airline wants to manage its exposure to fluctuations in fuel prices. What type of exposure is this?

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 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?

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

A national retailer’s cash management system includes a field deposit system using multiple banks. To limit the impact of a failure of one of these banks, a cash manager should:

An employer wishing to reduce operating income volatility would MOST LIKELY offer what type of retirement option to its employees?

As an internal control tool, what does the matching of an invoice to the original purchase confirm?

From a consumer's perspective, all of the following are true of both debit cards and credit cards EXCEPT:

Which of the following is NOT one of the three goals of a disbursement system?

Which of the following statements are true about the use of different discount rates for different types of projects?

I. Low-risk, short-term projects may be evaluated by using a short-term opportunity cost.

II. High-risk projects may be evaluated by using a discount rate that is greater than the company's normal opportunity cost.

III. A short-term investment (or borrowing) rate may be used as the company's short-term discount rate.

IV. The use of a lower discount rate for riskier projects forces riskier projects to earn higher rates of return.

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:

All of the following would encourage a company operating nationwide to develop multiple banking relationships EXCEPT:

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?

All of the following are objectives of credit management EXCEPT:

A company can dispute any check alterations within how many days after the bank statement has been sent?

A company may choose to outsource some of its cash management processes to:

Controlled disbursement notification times can be improved by which of the following?

The delay between the time a check is deposited and the time the company's account is credited with collected funds is known as:

In an international banking system, what role is commonly carried out by a large group of clearing banks?

Under the strict cash basis of accounting, revenue is recorded when:

BF Company, a manufacturer of food products, reported financial information shown in the Exhibit for the end of the year. BF Company is subject to covenants in its commercial paper program. It is in compliance with which of the following?

A telecommunications company has decided to sell its call center hosting division. This is an example of what type of financial decision?

Each of the following statements is true of both defined benefit plans and defined contribution plans EXCEPT:

Capital budgeting is defined as the:

Insurance companies often use which of the following payment instruments?

In a private label financing arrangement, the seller does which of the following?

To increase the money supply, the Federal Reserve would increase 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

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

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

The time between receipt of a mailed payment and the deposit of the payment in the payee's account is known as:

Given a corporate tax rate of 34%, a tax-exempt yield of 7% is equivalent to a taxable yield of:

Which of the following statements is true about futures contracts?

Which of the following will exempt commercial paper from SEC registration?

I. A maturity of fewer than 270 days

II. A rating grade of A-1 or P-1

III. Distribution through a licensed dealer

IV. Backing by a U.S. bank letter of credit

A grocery store chain would be likely to use all of the following services EXCEPT:

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

Which of the following statements is true about threshold concentration?

A PRIMARY objective of the cash concentration function is to:

All of the following items may be found on an income statement EXCEPT:

A company with high operating leverage reduces its average cost per unit by 20% as its sales volume increases by 40% annually. This an example oF.

ABC Company, a leading provider of office supplies, has successfully implemented EDI based on a request from one of its customers. ABC will not only benefit from the strategic alliance that will result, but as more of ABC’s customers adopt the program, ABC will also experience a positive impact on its:

A 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.

If the company determines that positive pay is too expensive and decides NOT to implement it, what type of risk financing technique is the company using?

A retail brokerage firm is MOST like which one of the following types of financial institutions?

JKL Company has been successful in shortening the time associated with its mail float, processing float and availability float. JKL Company will experience which of the following as a result of these improvements?

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 U.S. corporation has annual revenues of $500 million and a corporate tax rate of 15%. It has subsidiaries in Country A and Country B. Subsidiary A has annual revenues of $50 million. Subsidiary B has annual revenues of $20 million. The parent company has asked the Subsidiary A to transfer the equivalent of $10 million to Subsidiary B. There is a 5% withholding tax in Country A and a 3% withholding tax in Country B. How much withholding tax will the company owe as a result of this transaction?

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:

Company XYZ is a high technology company. It is planning on acquiring another company in the high technology sector. Company XYZ does not have enough cash to acquire the company and is planning on financing the acquisition through a bond offering. Which of the following measures is company XYZ MOST LIKELY to use in its analysis of operating profits considering it is a high debt transaction?

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?

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:

When a buyer receives goods, but payment is not due to the supplier until some later date, this is defined as:

An electronics manufacturer is attempting to protect itself from financial losses due to projected high warranty claims costs for one of its technically complex products. What kind of assessment should the company perform to determine the appropriate external insurance coverage that would protect it from the claims?

The CFO asks the Treasurer to create a new collections and concentration policy for their company. Following implementation of the policy, the company finds that reporting of receivables values is taking 10% longer, with no improvement in the company’s cash flow or liquidity. What step in developing the policy could have been executed better?

The Treasurer for XYZ Manufacturing, Inc. recently exchanged a portion of its euro holdings into U.S. dollars to purchase gas futures contracts. This was done in anticipation of an assumed rise in gas prices due to the continued weakening of the U.S. dollar. Which of the following types of risk is being mitigated?

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

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 U.S. bank is actively trying to establish its operations in an emerging market country, but is not experiencing much success due to differences in the business culture. To gain some market share, an executive of the bank decides to give the son of a local dignitary a highly paid position in the organization. Furthermore, the dignitary is a person of interest on various terror watch lists. Sanctions can be placed on the bank because the executive did NOT establish compliance with which of the following?

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?

A North American service company has autonomous offices in different geographic regions each handling their own sales and accounts receivables deposits to local banks which primarily consist of checks. By implementing a lockbox collection system, what objective in its collection policy would it have met?

In a large company, the person who normally oversees both the treasury and the accounting functions is the:

The Cash Manager of XYZ Corporation is trying to determine today’s closing cash position in order to make an investment or borrowing decision. The Cash Manager anticipates wiring $55,000 in tax payments and $63,000 in supplier payments today. Additionally, the Cash Manager is aware that a $15,000 wire was received today into the company’s concentration account from a customer and that XYZ Corp. will have to fund a bond interest payment of $200,000 in three days.

Using this information, as well as the data in the table, what is the closing cash position for XYZ Corporation?

Which of the following factors will allow a company to decrease the amount of collected balances required to compensate its bank for services?

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

Which of the following is a typical overnight use of excess cash?

Major Manufacturing Inc. (MMI) is a manufacturer of customized restaurant equipment. MMI's supplier relations policy is to take advantage of trade discounts, when available. All suppliers offer payment terms of 1/10, net 30. MMI invoices customers at the end of its 30-day manufacturing cycle. Which of the following is the correct chronological sequence of the events listed?

1. Customer invoice is sent.

2. Supplier payment is sent.

3. Customer payment is received.

4. Order is shipped.

5. Customer order is received.

6. Supplier order is placed.

With the advent of the euro, many U.S. companies have seen a reduction in their number of foreign currency transactions. As a result, these U.S. companies have benefited from which of the following?

I. Reduced FX transaction costs

II. Consolidated banking relationships

III. Simplified exchange risk management

IV. Reduced need to monitor foreign political climates

The use of debt to finance a company is called:

An option can be exercised in the market at its:

In capital budgeting, a company might risk adjust which of the following?

What step can a cash manager take to validate a cash flow forecast?

An international company would establish a re-invoicing center for which of the following reasons?

All of the following are common consumer-to-corporate international payment mechanisms EXCEPT:

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?

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?

A New York company wishes to use its treasury management system to send US funds to its London UK subsidiary. Which one of the following enables the same day settlement of funds transfer?

James Corp has a 7.98% WACC and an assumed tax rate of 30%. James Corp employed €70,000,000 of capital (long-term debt and equity) in a project that generated an operating profit of €9,500,000, after depreciation expense of €300,000. EVA in this case would be:

Which of the following is indicative of a consolidated operation?

An investor is interested in acquiring ownership in a firm while ensuring predictable timing and amount of cash flow. Which instrument should the investor choose?

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:

Company A purchases materials on cash-before-delivery terms, while Company B uses paid-on-production terms. Both companies are diligent with the protection of assets, but Company B has concerns with respect to transfer of title of the materials. Company B is MOST LIKELY what type of business?

The Fed can reduce the money supply by doing which of the following?

1. Increasing reserve requirements

2. Purchasing government securities

3. Increasing legal lending limits

4. Selling government securities

Whether through an active or passive decision by management, a risk management policy of control without financing results in:

Which of the following is one of the PRIMARY considerations when establishing treasury policies and procedures?

Which of the following occurs when the U.S. dollar strengthens?

Without regard to costs, which of the following concentration mechanisms maximizes investment income in a multi-bank environment?

Which scenario provides the BEST example of an agency problem?

The Sarbanes-Oxley Act of 2002:

An international company with multiple divisions has several types of common stock. The company spun off a new division that is growing very quickly and needs additional funding, but the parent does not want additional ownership investment or additional voters. The company would MOST LIKELY issue what kind of stock?

A company plans to double its dividend to its shareholders. Which of the following characteristics of the company would be MOST affected by this increase?

Corporate governance for publicly traded U.S. companies includes:

The term "factoring" refers to a:

Which of the following is true about disbursement ZBAs?

Which of the following is a type of borrowing between a company and a lender in which the paperwork connected with it is used to simplify the lending process?

Which of the following services allows a single account to be used by a company with multiple units?

What type of tax does a multinational auto manufacturer commonly pay in foreign countries at each stage of a vehicle’s production?

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?

Which of the following is NOT a component of the operating cycle?

A company that has facilities in different states and wants to control funding and facilitate check cashing would use which of the following?

The MICR encoding on a check provides all of the following information EXCEPT:

In a maturity matching financing strategy, which of the following is financed using short-term sources?

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 lockbox provider offers which of the following advantages over a company processing center?

I. It increases the company's operational control.

II. It produces processing economies of scale.

III. It allows for external audit controls.

IV. It reduces collection float.

Companies in the U.S. with a nationwide over-the-counter/field bank collection and concentration system often deal with:

What is a KEY reason that both a lessee and a lessor would enter into a lease financing agreement?

If a company does not have cash available to make an interest payment on a bond, the company is experiencing difficulty with its:

Financial statement preparation guidelines are provided by:

An instrument that gives the right to buy a stated number of shares of common stock at a specified price is known as:

Which agency implements monetary policy through purchases and sales of treasury securities?

An investor concerned about taxes on dividend distributions will MOST LIKELY purchase stock on which of the following dates?

Which of the following is MOST LIKELY to have a significant impact on the financial condition of an organization?

A company with constant earnings and excess cash is considering a significant stock repurchase plan. Which of the following is MOST LIKELY to occur?

A company’s capital structure includes $800,000,000 in total capital, of which $200,000,000 comes from debt. The firm’s after-tax cost of debt is 6%, and its cost of equity is 12%. The marginal tax rate is currently 40%. What is the company’s weighted average cost of capital?

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?

The fixed costs to manufacture widgets are estimated to be $54,000. The benefit (sales) of a widget is estimated to be $6.78 per unit, and the variable costs are estimated at $4.48 per unit. What is the estimated break-even point in units for the manufacture of widgets (rounded to the nearest unit)?

On which exchange is a company’s stock traded on the over-the-counter market?

One reason for using a sale and lease-back arrangement in lease financing is to:

Convertible securities consist of preferred stock anD.