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Your Path to Success: How to Pass the AFP CTP Certified Treasury Professional Exam

Questions 261

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?

Options:

A.

The hedged gains and losses are reported in comprehensive income.

B.

The hedged gains and losses are reported in current period income.

C.

The hedged gains and losses are reported in current period income together with the offsetting gains and losses of the foreign currency.

D.

The hedged gains and losses are reported in comprehensive income together with the offsetting gains and losses of the foreign currency.

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Questions 262

A company with a relatively poor credit rating borrows most of its funds with short maturities. They may want to change its exposure to interest rates to more correctly reflect the long-term nature of the projects it is funding. Or, they may believe that long-term interest rates are going to rise, causing it to seek protection against the impact of higher interest rates on its balance sheet. Which of the following would be a solution?

Options:

A.

Forward contract

B.

Interest rate swap

C.

Currency option

D.

Futures contract

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Questions 263

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

Options:

A.

invested to maximize portfolio return.

B.

placed in a separate fund held by a third party.

C.

placed with a professional investment manager.

D.

invested to provide a defined benefit for plan participants.

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Questions 264

The principal roles of corporate finance include which one of the following combination of functions?

Options:

A.

Maintaining liquidity and optimizing cash

B.

Capital budgeting and financial risk management

C.

Establishing credit terms and collection policies

D.

Shareholder relations and dividend decisions

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Questions 265

A company invests all of its short-term excess cash in T-bills on a daily basis. To prevent delays in processing its outgoing wire transfers, the company may ask its cash management bank to establish a:

Options:

A.

daylight overdraft line.

B.

letter of credit.

C.

revolving line of credit.

D.

net debit cap.

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Questions 266

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?

Options:

A.

6.0%

B.

6.2%

C.

9.0%

D.

9.3%

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Questions 267

Which of the following is NOT an operational risk?

Options:

A.

Workers’ compensation risk

B.

Fidelity risk

C.

Surety risk

D.

Currency risk

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Questions 268

Which of the following could be considered a weakness of a forecast derived by regression analysis?

Options:

A.

More than one factor may affect the event being measured.

B.

Seasonality cannot be incorporated into the forecast.

C.

A large amount of data is required.

D.

It is only valid for long-term forecasting.

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Questions 269

Unrealized holding gains and losses arise when trading securities are:

Options:

A.

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

B.

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

C.

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

D.

recorded on the anniversary date of the purchase.

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Questions 270

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

Options:

A.

ACH credits

B.

Lockbox receipts

C.

Checks in the process of collection

D.

Clearings on non-controlled disbursement accounts

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Questions 271

A company has large, ongoing short-term financing requirements with a maximum horizon of 250 days. It has a good credit rating and would like to use the least expensive source of short-term debt to finance its needs. The Treasurer might recommend which of the following?

Options:

A.

Commercial paper with a backup line of credit

B.

Asset sales through factoring of receivables

C.

A committed line of credit with compensating balances

D.

A single payment note secured by marketable securities

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Questions 272

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

Options:

A.

High financing costs

B.

Low accounts receivable balances

C.

High inventory levels

D.

Low tax liabilities

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Questions 273

When using the Internet to access auction markets, companies may use certificate authorities to reduce their exposure to which of the following types of risk?

Options:

A.

Credit

B.

Valuation

C.

Counterparty

D.

Foreign exchange

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Questions 274

Which of the following is a KEY operational advantage of short-term debt?

Options:

A.

It can be arranged quickly and easily.

B.

It improves the current ratio for debt covenant and compliance purposes.

C.

It reduces the risk of interest rate fluctuation and lowers interest expense.

D.

It improves the overall liquidity position and reduces risk.

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Questions 275

Underfunded pension obligations can be reduced by:

Options:

A.

an upward shift in the yield curve.

B.

higher benefit payments to retirees.

C.

immediate vesting in the defined contribution plan.

D.

higher premiums to the Pension Benefit Guaranty Corporation.

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Questions 276

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:

Options:

A.

a vanilla swap.

B.

an interest rate option.

C.

a basis-rate swap.

D.

an interest rate cap.

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Questions 277

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

Options:

A.

factoring.

B.

securitization.

C.

reclassification.

D.

secondary distribution.

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Questions 278

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:

Options:

A.

short-term non-committed lines.

B.

short-term committed lines.

C.

long-term non-committed lines.

D.

long-term committed lines.

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Questions 279

When evaluating a FSP during the RFP process, a company should place a high value on a FSPs financial strength when the provider:

Options:

A.

is located in a remote location.

B.

holds assets for the company.

C.

processes high dollar value transactions.

D.

processes international transactions.

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