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Free Questions › CTP › Corporate Liquidity Management
Free CTP Corporate Liquidity Management Practice Questions & Answers
150 exam-style Corporate Liquidity Management questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 121
Collection float causes a treasurer's available cash to be lower than the ledger balance. The most appropriate treasury response is to:
Select an option first.
Correct answer: C — Accelerate collections (e.g., lockboxes, electronic payments) to reduce the delay in fund availability
Explanation: Because only collected funds are investable, reducing collection float through techniques like lockboxes and electronic receipts speeds availability and improves usable cash. Investing off the ledger balance while float is outstanding risks overdrafts, so the available balance must guide decisions.
Question 122
A company considering outsourcing certain treasury processes to a shared service center should recognize that a key benefit is cost efficiency and standardization, but that the company still:
Select an option first.
Correct answer: D — Retains ultimate responsibility for controls, governance, and oversight of the outsourced activity
Explanation: Outsourcing or centralizing routine treasury tasks can lower costs and improve consistency, but accountability for governance, controls, and risk oversight remains with the company. Outsourcing shifts execution, not ultimate responsibility, and does not remove operational risk.
Question 123
Separating the person who executes a trade from the person who confirms it with the counterparty is important because it:
Select an option first.
Correct answer: A — Prevents unauthorized or fictitious trades from going undetected
Explanation: Independent confirmation by someone other than the dealer ensures that each trade is genuine, authorized, and correctly recorded, deterring rogue or fictitious dealing. This is a core segregation-of-duties control, not a speed or profit mechanism.
Question 124
Which statement best captures the division of labor between the controller and the treasurer?
Select an option first.
Correct answer: D — The controller handles accounting and financial reporting, while the treasurer manages cash, financing, and financial risk
Explanation: The controller is the chief accounting officer responsible for reporting and control, and the treasurer is responsible for liquidity, funding, banking, and risk management. These complementary but distinct roles support segregation of duties at the executive level.
Question 125
Which of the following is a genuine risk, rather than a benefit, of centralizing treasury operations?
Select an option first.
Correct answer: A — Operational concentration that creates a single point of failure requiring strong controls and continuity planning
Explanation: Centralization improves cash visibility, scale, and policy consistency, but concentrating processes in one unit creates a single point of failure that demands robust controls, redundancy, and business-continuity planning. The other options are recognized benefits, not risks.
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Question 126
A negative cash conversion cycle most likely indicates that a company:
Select an option first.
Correct answer: D — Collects cash from customers before it must pay its suppliers, effectively using supplier financing
Explanation: A negative CCC arises when DPO exceeds the sum of DIO and DSO, meaning the firm receives customer cash before paying suppliers and effectively finances operations with supplier credit. This is often a sign of strong working-capital efficiency, not insolvency.
Question 127
The quick (acid-test) ratio excludes inventory from the numerator primarily because inventory:
Select an option first.
Correct answer: B — Is generally the least liquid current asset and may not convert to cash quickly at full value
Explanation: Inventory typically takes longer to convert to cash and may sell below book value, so excluding it yields a more stringent test of the firm's ability to meet short-term obligations with its most liquid assets. Inventory remains a current asset; it is simply removed for conservatism.
Question 128
Which money market instrument is a short-term, unsecured promissory note issued by large, highly creditworthy corporations to fund working capital?
Select an option first.
Correct answer: A — Commercial paper
Explanation: Commercial paper is an unsecured promissory note issued by top-tier corporations, typically maturing in 270 days or less, to finance short-term needs. A banker's acceptance is a bank-guaranteed time draft and a T-bill is issued by the government, so neither is corporate unsecured paper.
Question 129
From the perspective of the party providing the cash, a repurchase agreement (repo) is best described as a:
Select an option first.
Correct answer: A — Collateralized short-term investment
Explanation: In a repo, the investor buys securities and the counterparty agrees to repurchase them later at a higher price, effectively a short-term loan secured by the underlying securities. The collateral distinguishes it from unsecured lending, and it has nothing to do with equity or FX forwards.
Question 130
A banker's acceptance becomes a negotiable money market instrument primarily because it is:
Select an option first.
Correct answer: B — Guaranteed (accepted) by a commercial bank
Explanation: A banker's acceptance is a time draft that a bank stamps 'accepted,' adding the bank's guarantee of payment at maturity, which makes it marketable in the secondary market. Its credit quality derives from the accepting bank, not from a central bank issuance or real estate.
Question 131
Transaction exposure refers to the risk that exchange rate movements will affect the:
Select an option first.
Correct answer: D — Home-currency value of committed cash flows denominated in a foreign currency
Explanation: Transaction exposure is the risk that the settlement value of already-committed foreign-currency receivables or payables changes as the exchange rate moves before settlement. Consolidation effects are translation exposure, and long-run competitiveness is economic exposure.
Question 132
Translation exposure (accounting exposure) arises primarily when a company:
Select an option first.
Correct answer: B — Consolidates the financial statements of foreign subsidiaries into the parent's reporting currency
Explanation: Translation exposure is the gain or loss recognized when foreign subsidiaries' balance sheets and income statements are restated into the parent's currency for consolidation. It is an accounting effect, distinct from the cash-based transaction exposure of a foreign-currency contract.
Question 133
Economic (operating) exposure is best described as the effect of exchange rate changes on a firm's:
Select an option first.
Correct answer: D — Future cash flows and competitive position over the long run
Explanation: Economic exposure captures how currency movements can alter a firm's future revenues, costs, and competitiveness even without any specific outstanding contract. Invoiced receivables are transaction exposure, and historical asset cost relates to translation, not operating cash flows.
Question 134
A forward foreign exchange contract differs from a spot transaction in that a forward:
Select an option first.
Correct answer: D — Locks in an exchange rate today for delivery at a specified future date
Explanation: A forward contract fixes the exchange rate now but settles on a future value date, allowing a firm to hedge a known future foreign-currency cash flow. A spot deal, by contrast, settles almost immediately at the current market rate.
Question 135
A commercial letter of credit is best described as a:
Select an option first.
Correct answer: A — Bank's conditional undertaking to pay the exporter upon presentation of conforming documents
Explanation: A letter of credit substitutes the issuing bank's creditworthiness for the buyer's, promising payment to the exporter when compliant documents are presented per the LC terms. It is a documentary payment mechanism, not a loan, subsidy, or product-quality warranty.
Question 136
Selling on open account terms generally shifts the payment risk to favor the:
Select an option first.
Correct answer: D — Buyer (importer)
Explanation: Under open account, goods are shipped and delivered before payment is due, so the buyer holds the advantage and the seller bears the risk of non-payment. It is the most buyer-friendly and seller-risky of the common trade-payment methods.
Question 137
In a documentary collection, the banks involved:
Select an option first.
Correct answer: A — Act as intermediaries handling documents but do not guarantee payment
Explanation: In a documentary collection, banks forward shipping and title documents and collect payment or acceptance, but unlike a letter of credit they assume no obligation to pay if the importer defaults. The exporter thus relies on the buyer's willingness to pay rather than a bank guarantee.
Question 138
Factoring is a trade-finance technique in which a company:
Select an option first.
Correct answer: D — Sells its accounts receivable to a third party at a discount
Explanation: Factoring involves selling receivables to a factor at a discount in exchange for immediate cash, transferring collection to the factor. It differs from inventory-based borrowing and from issuing paper or leasing, which do not monetize receivables.
Question 139
An in-house bank is best described as a:
Select an option first.
Correct answer: C — Centralized treasury function that provides banking-type services to the group's subsidiaries
Explanation: An in-house bank centralizes services such as intercompany lending, pooling, netting, and payments-on-behalf-of within the corporate treasury, acting as an internal bank for the group's units. It is not an externally chartered bank or an outside vendor.
Question 140
Netting, in an intercompany context, refers to:
Select an option first.
Correct answer: D — Offsetting intercompany payables and receivables so only net amounts are settled
Explanation: Netting consolidates the many intercompany obligations among group entities and settles only the net difference for each, cutting the number and cost of cross-border payments and FX conversions. It reduces settlement volume without merging the entities.
Question 141
Repatriation of cash refers to:
Select an option first.
Correct answer: C — Returning profits or cash held abroad back to the parent's home country
Explanation: Repatriation is the process of bringing foreign-earned cash or profits back to the parent country, often through dividends, loans, royalties, or fees, subject to tax and regulatory considerations. It is the inbound flow to the parent, not an outbound funding of subsidiaries.
Question 142
A 90-day Treasury bill with a face value of $1,000,000 is purchased for $985,000. What is its bank discount yield (360-day basis)?
Select an option first.
Correct answer: D — 6.00%
Explanation: Bank discount yield = (discount / face) x (360 / days) = ($15,000 / $1,000,000) x (360 / 90) = 0.015 x 4 = 6.00%. The discount yield uses face value and a 360-day year, unlike the bond-equivalent yield which would use price and 365 days.
Question 143
For a 90-day Treasury bill with face value $1,000,000 purchased at $985,000, what is the bond-equivalent yield (365-day basis)?
Select an option first.
Correct answer: D — 6.18%
Explanation: Bond-equivalent yield = (discount / price) x (365 / days) = ($15,000 / $985,000) x (365 / 90) = 0.0152284 x 4.0556 = 6.18%. It exceeds the 6.00% discount yield because it divides by the lower purchase price and annualizes over 365 days.
Question 144
A firm issues 60-day commercial paper with a face value of $5,000,000 at a discount rate of 4% (360-day basis). What net proceeds does the issuer receive?
Select an option first.
Correct answer: A — $4,966,667
Explanation: Proceeds = Face x (1 - discount rate x days/360) = $5,000,000 x (1 - 0.04 x 60/360) = $5,000,000 x (1 - 0.0066667) = $5,000,000 x 0.9933333 = $4,966,667. The $33,333 difference from face is the interest cost embedded in the discount.
Question 145
A treasurer invests $10,000,000 in a 7-day repo at a repo rate of 3.5% (360-day basis). How much interest is earned?
Select an option first.
Correct answer: B — $6,805.56
Explanation: Interest = principal x rate x days/360 = $10,000,000 x 0.035 x 7/360 = $6,805.56. Using a 360-day money market convention, the short 7-day term produces a small absolute return despite the sizable principal.
Question 146
A negotiable CD of $1,000,000 pays 5% interest and matures in 180 days (360-day basis). How much interest is paid at maturity?
Select an option first.
Correct answer: C — $25,000
Explanation: Interest = principal x rate x days/360 = $1,000,000 x 0.05 x 180/360 = $25,000. Because 180 days is exactly half of a 360-day year, the investor earns half of the 5% annual coupon. The $50,000 answer wrongly ignores the fractional term.
Question 147
The spot EUR/USD rate is 1.1000 and the 3-month forward rate is 1.1050. What is the approximate annualized forward premium on the euro?
Select an option first.
Correct answer: C — 1.82%
Explanation: Annualized premium = (Forward - Spot)/Spot x (12/months) = (1.1050 - 1.1000)/1.1000 x (12/3) = 0.004545 x 4 = 1.82%. The euro trades at a forward premium because it costs more USD for future delivery, annualized over the 3-month tenor.
Question 148
A U.S. company has a receivable of EUR 2,000,000 and the current spot rate is 1.10 USD per EUR. What is the receivable worth in U.S. dollars at spot?
Select an option first.
Correct answer: A — $2,200,000
Explanation: USD value = EUR 2,000,000 x 1.10 USD/EUR = $2,200,000. Because the rate is quoted as dollars per euro, you multiply the euro amount by the rate. Dividing would apply only if the quote were euros per dollar.
Question 149
A U.S. firm books a receivable of GBP 1,000,000 when the rate is 1.20 USD/GBP but collects when the rate is 1.15 USD/GBP. What is the transaction gain or loss in dollars?
Select an option first.
Correct answer: D — $50,000 loss
Explanation: Booked value = GBP 1,000,000 x 1.20 = $1,200,000; collected value = GBP 1,000,000 x 1.15 = $1,150,000. The dollar receipt fell by $50,000, a transaction loss, because the pound weakened against the dollar before settlement.
Question 150
A factor advances 80% of a $500,000 pool of receivables and charges a 2% fee on the face amount. How much cash does the seller receive as the initial advance?
Select an option first.
Correct answer: D — $400,000
Explanation: Initial advance = 80% x $500,000 = $400,000. The advance rate is applied to the receivables' face value; the 2% ($10,000) fee and the remaining 20% reserve are settled separately, not netted from the stated advance amount.
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