CCM Investment and Short-Term Financing 5

Question 1

A company enters a repurchase agreement where it sells securities and agrees to repurchase them the next day. From the company's perspective, this transaction is:

Accepted Answer

A form of short-term borrowing secured by securities

Answer

A repo from the seller's perspective is collateralized borrowing; the company raises cash and pledges securities as collateral.

Question 2

Which type of Eurodollar deposit is negotiable and can be traded in the secondary market before maturity?

Accepted Answer

Eurodollar CD

Answer

Eurodollar CDs are negotiable certificates of deposit issued by foreign bank branches that can be sold in the secondary market.

Question 3

When evaluating short-term investment alternatives, which criterion takes priority according to standard cash management principles?

Accepted Answer

Ensuring safety of principal

Answer

Safety of principal is the paramount objective for short-term investments, followed by liquidity, then yield.

Question 4

A company uses a credit facility with a 0.25% commitment fee on the unused portion. If the total facility is $50 million and $20 million is drawn, the annual commitment fee on the unused balance is:

Accepted Answer

$75,000

Answer

Unused balance = $30 million; fee = $30,000,000 × 0.0025 = $75,000 per year.

Question 5

Which of the following instruments carries the LOWEST credit risk for a U.S.-based corporate investor?

Accepted Answer

U.S. Treasury bills

Answer

U.S. Treasury bills are direct obligations of the federal government and carry zero default risk, the lowest credit risk available.

(CCM) Certified Cash Manager Practice Test

(CCM) Certified Cash Manager Practice Test

CCM Investment and Short-Term Financing 5