AFP AFP Investment Portfolio Management 2 — Questions and Answers
Question 1: Which of the following is a money market instrument eligible for corporate short-term investment portfolios?
- Commercial paper (Correct answer)
- Common stock
- Real estate investment trusts
- Convertible bonds
Correct answer: Commercial paper
Commercial paper is a short-term unsecured debt instrument widely used in corporate investment portfolios for its liquidity.
Question 2: What is the AFP recommended minimum credit rating for commercial paper held in a corporate investment portfolio?
- A-1/P-1 (Correct answer)
- BBB/Baa2
- AA/Aa2
- B/B2
Correct answer: A-1/P-1
AFP guidelines recommend a minimum short-term rating of A-1 (S&P) or P-1 (Moody's) for commercial paper to ensure credit quality.
Question 3: What is the key difference between a separate account and a money market fund for corporate investment?
- A separate account provides direct ownership of securities; a fund pools assets (Correct answer)
- A fund provides direct ownership; a separate account pools assets
- Both offer identical ownership structures
- Separate accounts are only for equities
Correct answer: A separate account provides direct ownership of securities; a fund pools assets
In a separate account, the corporation directly owns each security, while a money market fund pools investor assets under a shared NAV.
Question 4: Which risk is most relevant when a corporate treasury invests in foreign currency-denominated securities?
- Foreign exchange risk (Correct answer)
- Liquidity risk
- Duration risk
- Reinvestment risk
Correct answer: Foreign exchange risk
Investing in foreign currency instruments exposes the portfolio to exchange rate fluctuations that can erode returns.
Question 5: What is a repurchase agreement (repo) primarily used for in corporate treasury investing?
- Short-term collateralized borrowing or overnight investing (Correct answer)
- Long-term equity financing
- Hedging currency exposure
- Acquiring real assets
Correct answer: Short-term collateralized borrowing or overnight investing
A repo allows a treasury to invest excess cash overnight with collateral backing, providing short-term liquidity management.
Question 6: Under the AFP's safety-liquidity-yield framework, which objective takes the highest priority?
- Safety (Correct answer)
- Liquidity
- Yield
- All are equally weighted
Correct answer: Safety
AFP's framework ranks safety first to preserve capital, followed by liquidity to meet obligations, then yield maximization.
AFP AFP Investment Portfolio Management 2
Which of the following is a money market instrument eligible for corporate short-term investment portfolios?