Banking Treasury Management 5

Question 1

What is the primary distinction between 'hard' currency and 'soft' currency in international treasury management?

Accepted Answer

Hard currencies are widely accepted globally and stable; soft currencies are illiquid and subject to high volatility or controls

Answer

Hard currencies (e.g., USD, EUR, JPY) are globally accepted, freely convertible, and relatively stable, while soft currencies face restricted convertibility, capital controls, or high volatility.

Question 2

Which internal control best mitigates the risk of unauthorized wire transfers in a corporate treasury department?

Accepted Answer

Requiring dual authorization (four-eyes principle) for all outgoing payments above a threshold

Answer

Dual authorization (requiring two separate approvers for payments) is the most direct control preventing a single employee from initiating and approving unauthorized transfers.

Question 3

A U.S. multinational consolidates financial statements in USD. Fluctuations in the value of its foreign subsidiaries' net assets due to exchange rate changes affect which financial statement item?

Accepted Answer

Other Comprehensive Income (OCI) via cumulative translation adjustment (CTA)

Answer

Under ASC 830, translation gains and losses from converting foreign subsidiaries' balance sheets to the reporting currency are recorded in OCI as a cumulative translation adjustment, not in net income.

Question 4

In the context of bank capital management, what is the purpose of a Contingent Convertible bond (CoCo)?

Accepted Answer

To automatically convert debt to equity or be written down when a bank's capital falls below a trigger level

Answer

CoCo bonds absorb losses by converting to equity or writing down principal when a bank's CET1 ratio falls below a predefined trigger, automatically recapitalizing the bank without a bailout.

Question 5

A treasury manager calculates that the company's working capital cycle is 80 days. Which formula correctly derives this figure?

Accepted Answer

Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding

Answer

The cash conversion cycle (working capital cycle) = DIO + DSO − DPO, representing the days cash is tied up from raw material purchase to customer collection.

Banking Practice Test

Banking Practice Test

Banking Treasury Management 5