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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 151
A supplier offers terms of 2/10, net 30. What is the approximate annualized cost of forgoing the discount and paying on day 30 (using a 365-day year)?
Select an option first.
Correct answer: C — 37.2%
Explanation: Cost = (discount / (1 - discount)) x (365 / (pay days - discount days)) = (2/98) x (365/20) = 0.020408 x 18.25 = 37.2%. Forgoing a 2% discount to delay payment only 20 extra days is very expensive on an annualized basis.
Question 152
Under bilateral netting, Subsidiary A owes Subsidiary B $300,000 while Subsidiary B owes Subsidiary A $200,000. What single net settlement occurs?
Select an option first.
Correct answer: C — A pays B $100,000
Explanation: Netting the two positions leaves A owing B $300,000 - $200,000 = $100,000, settled with a single payment from A to B. This replaces two gross transfers totaling $500,000 with one net $100,000 payment.
Question 153
A multilateral netting center reduces total gross intercompany settlements of $1,000,000 to net settlements of $250,000. What percentage reduction in settlement volume was achieved?
Select an option first.
Correct answer: D — 75%
Explanation: Reduction = (gross - net)/gross = ($1,000,000 - $250,000)/$1,000,000 = $750,000/$1,000,000 = 75%. Multilateral netting typically slashes cross-border payment volume and the associated FX and transfer costs by this kind of margin.
Question 154
A parent makes a $5,000,000 intercompany loan to a foreign subsidiary at 5% annual interest, and the host country imposes a 10% withholding tax on interest paid to the parent. What net interest does the parent receive per year?
Select an option first.
Correct answer: B — $225,000
Explanation: Gross interest = $5,000,000 x 5% = $250,000; withholding tax = 10% x $250,000 = $25,000; net = $250,000 - $25,000 = $225,000. Withholding tax on cross-border interest reduces the parent's net receipt and is a key repatriation consideration.
Question 155
A treasurer with a very short investment horizon and a strong need for principal safety and liquidity chooses Treasury bills over commercial paper despite the lower yield. The best justification is that T-bills offer:
Select an option first.
Correct answer: C — Superior credit quality and a deeper, more liquid secondary market
Explanation: T-bills carry the full faith and credit of the government and trade in the deepest, most liquid money market, making them ideal when safety and immediate liquidity dominate return considerations. They typically yield less than CP, and while T-bill interest is exempt from state and local (not federal) tax, that is not the primary liquidity rationale.
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Question 156
A treasurer structures a short-term portfolio by staggering maturities across 30, 60, 90, and 120 days rather than concentrating in one maturity. The primary purpose of this 'laddering' strategy is to:
Select an option first.
Correct answer: A — Manage reinvestment and interest-rate risk while preserving periodic liquidity
Explanation: Laddering spreads maturities so a portion of the portfolio comes due regularly, smoothing reinvestment risk if rates move and providing recurring liquidity without selling securities early. It does not eliminate credit risk nor remove the need for forecasting.
Question 157
A U.S. importer owes a fixed EUR 5,000,000 payable due in 90 days and wants to eliminate uncertainty about its dollar cost. The most direct hedge is to:
Select an option first.
Correct answer: D — Buy euros forward for delivery in 90 days at a rate locked today
Explanation: Buying EUR forward fixes the dollar cost of the future euro payment, fully hedging the known payable's transaction exposure. Doing nothing leaves the exposure open, and selling euros forward would compound rather than offset a payable.
Question 158
Many companies choose not to hedge translation exposure with derivatives primarily because translation gains and losses:
Select an option first.
Correct answer: C — Are non-cash accounting effects, so hedging them can create real cash-flow risk
Explanation: Translation exposure is an accounting restatement that does not itself move cash, so using cash-settled derivatives to hedge it can introduce genuine cash-flow risk to offset a paper effect. Firms therefore often leave translation unhedged or use natural hedges such as local-currency financing.
Question 159
An exporter shipping to a buyer in a politically unstable country requests that its own local bank add its guarantee to the importer's letter of credit. This is known as a:
Select an option first.
Correct answer: B — Confirmed letter of credit
Explanation: A confirmed letter of credit adds a second bank's (typically in the exporter's country) independent obligation to pay, protecting the exporter against issuing-bank and country risk. A standby LC serves as a backup payment guarantee, and a documentary collection carries no bank guarantee at all.
Question 160
Ranking the common trade-payment methods, which poses the highest non-payment risk to the exporter?
Select an option first.
Correct answer: C — Open account
Explanation: Open account is riskiest for the seller because goods are shipped and delivered before any payment obligation matures, leaving the exporter fully exposed to buyer default. Cash in advance is the safest for the exporter, and a confirmed LC provides strong bank backing.
Question 161
How does forfaiting typically differ from factoring?
Select an option first.
Correct answer: C — Forfaiting is without recourse, medium-to-long term, and commonly used to finance capital-goods exports
Explanation: Forfaiting is the without-recourse purchase of medium- to long-term export receivables (often for capital goods), transferring credit and political risk to the forfaiter. Factoring, by contrast, usually addresses short-term receivables and may be with or without recourse.
Question 162
The principal benefit of establishing a multilateral netting center for a multinational group is that it:
Select an option first.
Correct answer: A — Reduces the number and value of cross-border payments and FX conversions, lowering transaction costs
Explanation: By offsetting intercompany obligations and settling only net amounts, a netting center cuts the volume of cross-border transfers and the associated bank charges and FX spreads. It streamlines settlement but does not eliminate taxes or all currency risk.
Question 163
Thin-capitalization rules primarily affect intercompany financing by:
Select an option first.
Correct answer: A — Limiting the tax deductibility of interest when a subsidiary is financed with excessive intercompany debt relative to equity
Explanation: Thin-capitalization rules restrict interest deductions where a subsidiary is deemed to have too much related-party debt versus equity, discouraging profit-shifting via excessive intercompany loans. They limit deductibility rather than banning intercompany lending outright.
Question 164
When setting the interest rate on an intercompany loan between a parent and its foreign subsidiary, tax authorities generally require the rate to be:
Select an option first.
Correct answer: C — Set at an arm's-length rate comparable to what unrelated parties would agree to
Explanation: Transfer-pricing rules require intercompany loans to bear an arm's-length interest rate reflecting terms unrelated parties would negotiate, preventing artificial shifting of profits across borders. A zero or arbitrary rate would invite tax adjustments and penalties.
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