CCM Investment and Short-Term Financing 3

Question 1

A company's investment policy statement should primarily address which of the following?

Accepted Answer

Permitted instruments, maturity limits, and credit quality thresholds

Answer

An IPS establishes safety, liquidity, and yield objectives along with permitted investment types, credit ratings, and maturity constraints.

Question 2

Banker's acceptances are most commonly used to finance which type of transaction?

Accepted Answer

International trade transactions

Answer

Banker's acceptances originated as time drafts used in international trade, with the accepting bank guaranteeing payment.

Question 3

Which measure best captures the total return on a money market instrument, accounting for compounding when reinvested?

Accepted Answer

Effective annual yield

Answer

The effective annual yield (EAY) compounds the periodic return to reflect true annualized earnings including reinvestment.

Question 4

When a company draws on a line of credit that requires a compensating balance, the effective borrowing cost:

Accepted Answer

Is higher than the stated interest rate

Answer

Because a portion of the borrowing must remain on deposit and earns little or no interest, the effective rate exceeds the stated rate.

Question 5

An asset-backed commercial paper (ABCP) conduit differs from traditional commercial paper primarily because:

Accepted Answer

Its repayment is supported by a pool of underlying financial assets

Answer

ABCP is issued by a special-purpose vehicle backed by receivables or other financial assets rather than the issuer's general credit.

(CCM) Certified Cash Manager Practice Test