CCM Investment and Short-Term Financing 2

Question 1

Which risk refers to the possibility that a short-term investment cannot be sold quickly at or near its fair market value?

Accepted Answer

Liquidity risk

Answer

Liquidity risk is the risk that an asset cannot be converted to cash quickly without a significant price concession.

Question 2

A company needs to finance seasonal inventory buildups for 60-90 days. Which financing instrument is MOST appropriate?

Accepted Answer

Revolving credit facility

Answer

A revolving credit facility provides flexible, short-term borrowing that can be drawn and repaid as seasonal needs fluctuate.

Question 3

The discount yield on a 91-day T-bill priced at $98.50 per $100 face value is approximately:

Accepted Answer

5.94%

Answer

Discount yield = (Discount / Face Value) × (360 / Days) = (1.50 / 100) × (360 / 91) ≈ 5.94%.

Question 4

Which characteristic of commercial paper makes it attractive as a short-term investment for corporations?

Accepted Answer

It typically offers higher yields than T-bills of similar maturity

Answer

Commercial paper is unsecured, so it carries more credit risk than T-bills and compensates investors with higher yields.

Question 5

Under a sweep account arrangement, excess balances are typically transferred to which type of vehicle overnight?

Accepted Answer

Money market mutual funds or repo agreements

Answer

Sweep accounts automatically move excess balances into overnight money market funds or repurchase agreements to earn interest.

(CCM) Certified Cash Manager Practice Test