CCM Treasury Operations and Banking Relations 3 — Questions and Answers
Question 1: Under the Uniform Commercial Code (UCC), what is the standard deadline by which a bank must return a dishonored check to avoid being liable for its payment?
- By midnight of the banking day following receipt (Correct answer)
- Within 3 business days of presentment
- Within 24 hours of the Federal Reserve's clearinghouse deadline
- By the end of the same business day it was received
Correct answer: By midnight of the banking day following receipt
Under UCC Article 4, a bank must return a dishonored check by midnight of the banking day following the day it received the item (the 'midnight deadline').
Question 2: A treasury team is evaluating whether to use a lockbox or an in-house collection process. Which factor most strongly favors choosing a bank lockbox?
- The company has many large wire transfer receipts
- Customers are geographically dispersed and mail float is significant (Correct answer)
- The company's invoices are primarily paid via ACH
- The company already has a sophisticated in-house remittance processing team
Correct answer: Customers are geographically dispersed and mail float is significant
Lockboxes reduce mail float by intercepting payments close to customers, making them most valuable when payers are geographically dispersed.
Question 3: What is 'availability float' in the context of bank collections?
- The delay between when a customer mails a check and when the company receives it
- The delay between when a check is deposited and when the funds are available for use (Correct answer)
- The time between check issuance and its presentation to the payer's bank
- The difference between book balance and bank ledger balance
Correct answer: The delay between when a check is deposited and when the funds are available for use
Availability float (also called collection float) is the time between deposit and when the bank makes the funds available in the collected balance.
Question 4: A company implements a positive pay system. What risk does this primarily mitigate?
- ACH unauthorized debits from operating accounts
- Check fraud through altered payee names or counterfeit checks (Correct answer)
- Wire transfer fraud from social engineering attacks
- Excess bank service charges from idle balances
Correct answer: Check fraud through altered payee names or counterfeit checks
Positive pay matches checks presented for payment against the company's issued check file, flagging any checks with altered amounts, payees, or that are not on the issued list.
Question 5: In a Request for Proposal (RFP) process for banking services, what is the purpose of a 'banking needs assessment' conducted prior to issuing the RFP?
- To determine the bank's credit rating and financial stability
- To document the company's current service volumes, fees, and requirements so banks can bid accurately (Correct answer)
- To negotiate compensating balance requirements before selecting a bank
- To benchmark the company's float against industry standards
Correct answer: To document the company's current service volumes, fees, and requirements so banks can bid accurately
A banking needs assessment documents current service usage, transaction volumes, and requirements so that prospective banks can provide accurate and comparable bids.
Question 6: Which of the following best describes a 'sweep account' arrangement in treasury management?
- An account where all incoming wire transfers are automatically converted to foreign currency
- An arrangement that automatically invests excess balances above a target level into short-term investments overnight (Correct answer)
- A lockbox account that sweeps remittances to a central depository daily
- A zero balance account used exclusively for payroll disbursements
Correct answer: An arrangement that automatically invests excess balances above a target level into short-term investments overnight
A sweep account automatically moves excess funds above a set target balance into overnight investments (e.g., money market funds) and reverses the sweep each morning.
Question 7: What is the primary distinction between a 'ledger balance' and a 'collected balance' in a bank account?
- Ledger balance includes overdraft facilities; collected balance does not
- Ledger balance reflects all posted debits and credits; collected balance excludes items not yet cleared (Correct answer)
- Ledger balance is reported daily; collected balance is reported monthly
- Ledger balance is used for interest calculation; collected balance is used for fee assessment
Correct answer: Ledger balance reflects all posted debits and credits; collected balance excludes items not yet cleared
The ledger balance includes all posted transactions, while the collected balance subtracts items still in the float (not yet cleared by the paying bank), reflecting actually available funds.
CCM Treasury Operations and Banking Relations 3
Under the Uniform Commercial Code (UCC), what is the standard deadline by which a bank must return a dishonored check to avoid being liable for its payment?