Treasury Management - Midterm Review

Inventory is not included in measuring ability to meet current obligations

Quick Ratio

Studies found this ratio to be accurate in predicting financial failure

cash flow to total debt ratio

This act created the financial stability oversight council

Dodd-Frank Act

This act created Financial Holding Companies

Gramm-Leach Bliley Act

Mandated the Fed to reduce and/or price payment system float

Depository Institution Deregulation and Monetary Control Act (DIDMCA) (1980)

Provisions of this act are incorporated in federal reserve regulation Q

Glass-Steagall Act

Identifies and evaluates the areas of greatest vulnerability

Sensitivity analysis

Creditors/investors are usually most concerned with which of the following?

Statement of retained earnings

Which of the following is a qualitative factor in credit decisions process?

Character

The discount rate at which the NPV equals zero?

IRR

Provides the most assurance that creditors will receive payment when it is due

Installment Account

Percent of credit sales that remain uncollected at the end of a specified period

All of the above: A/R balance pattern, distribution forecast, receipts/disbursement forecast

The call feature of a bond issue allows the issuer to

Retire the security before maturity

The objective of a cash concentration system is to minimize

Bank balances

Which of the following reduces the cost of transfers in cash concentration systems?

Ending daily transfer, matching timing of receipt with transfer, balance avg.

Created when statements are converted into the company's home currency

Translation exposure

Quoted for delivery one or two business days from date of trade

Spot Rate

Permanent current assets and fixed assets are financed with long-term financing. Short-term financing is used to finance fluctuating current assets.

Maturity matching finance strategy

An arrangement between businesses to buy goods/services on account, that is, without making immediate cash payments.

Trade Credit

A hedge against interest rates falling below a certain level

Floor

Two parties agree to exchange a set of cash flows at a future point in time

Swap

Pay on positive balances charge on negative balance

Pooling

Which of the following is an objective of Employee Retirement Income Security Act?

All of the above: Insure that employees and beneficiaries receive adequate information, Set standards of the conduct for those who manage plans and funds, Safeguard pension benefits for workers whose plans are terminated

Value dating

A delay in the use of funds to compensate foreign banks for service

A detailed invoice for services provided by a financial institution

Account analysis

Improves disclosure and financial reporting

SOX Act

Electronic batch processing payment system for high volume low value transfers

Automated Clearing House (ACH)

Which of the following does not appear on the MICR line of a check?

Payee's account number

Receivables are bundled into packages and resold to other investors

Securitization

Time drafts that arise from the financing of commercial trade

Bankers acceptance

Which of the following will generally improve availability?

All of the above

Long term effects of exchange rate changes on PV of the future cash flows

Economic exposure

Standardized contracts traded on organized exchanges

Futures market

Created by SOX, the SEC appoints the chairman and members

PCAOB (Public Company Accounting Oversight Board)

Exposure that usually occurs if the receivables and payables are in different currencies

Transaction exposure

Created when financial statements are converted into the parent company's home currency

Translation exposure

Used to combat check fraud

Positive pay

Disadvantage of a lockbox over company processing center

Reduced operational control

A major savings from using a retail lockbox is a reduction in

Processing costs

Lockbox processing cost is less critical than reduction of float

Wholesale

A European consumer payment mechanism

Giro

1. Bank gives same day notification to a company of the dollar amount that will clear

Controlled disbursement

The relationship between risk and the required rate of return for equity securities

CAPM

Lessor retains ownership of the equipment at the end of the lease

Operating lease

This date is usually four business days prior to the holder-of-record date

Ex-dividend date

Image technology is used to facilitate processing

Wholesale, retail, hybrid (all of above)

What does not transfer value?

SWIFT

Calculated using the annual yield formula and a 365 day per year basis

Bond equivalent yield

Both interest and principal are guaranteed by the full faith and credit of the

US government national mortgage association

What is true about credit enhancement of commercial paper?

It permits weaker firms to issue paper at more favorable pricing

Tax equivalent yield = 9.09

Tax exempt yield / (1 - marginal tax rate)

Commercial Paper is an unsecured promissory note that matures in 270 days or less.

True

The Eurodollar deposits are dollar-denominated deposits that are held in banks outside the US although not necessarily in Europe.

True

A derivative is a financial product that derives value from some underlying assets.

True

Banks borrow and lend to each other on an overnight basis to maintain adequate reserve positions with the Fed.

True

The forward market is one in which an exchange rate for future delivery of currencies can be fixed today.

True

Leading or lagging moves liquidity from one subsidiary to another when currency is expected to appreciate or depreciate against a parent's home currency.

True

In a documentary collection, banks assume no direct obligation for ensuring that payment is made.

True

CHIPS is a bank owned large-dollar fund transfer network.

True

Overdrafts are permissible in many countries outside the US.

True

Concentration enables a company to invest a larger amount of fund potentially increasing interest income.

True

Disaster recovery refers to the restoration of systems and communications after an outage.

True

The Glass Steagall Act provided for the phasing out of Regulation Q.

False

A current ratio measures the degree to which a company's current liabilities are covered by its most liquid current assets.

False

Regulation Q allows the payment of interest on corporate demand deposits.

False

Value dating is a technique employed by US banks to obtain compensation for services provided to their customers.

False

The maximum time to maturity for banker's acceptance is 90 days.

False

A currency is at a premium when it is worth less in the forward market than in the spot.

False

SOX regulations require independent directors to meet without management in regular executive sessions.

False

Sweep account is an example of an active investment strategy.

False

The prime rate is the most commonly used base rate for short-term borrowing.

False

A wholesale lockbox is characterized by high volume, low dollar checks.

False

A retail lockbox is characterized by low volume, high dollar checks.

False

Collection float and disbursement float timing will never be equal.

False

A wholesale lockbox is characterized by high volume, low dollar checks.

False

A retail lockbox is characterized by low volume, high dollar checks.

False

Collection float and disbursement float timing will never be equal.

False