Certified Treasury Professional Exam Short-Term Investing and Borrowing 2 — Questions and Answers
Question 1: A company's investment policy statement (IPS) for short-term investments typically prioritizes objectives in which order?
- Return, liquidity, safety
- Safety, liquidity, yield (Correct answer)
- Liquidity, safety, return
- Yield, safety, liquidity
Correct answer: Safety, liquidity, yield
The CTP framework emphasizes safety first (preservation of principal), then liquidity (availability of funds), and finally yield (return optimization).
Question 2: An agency security issued by the Federal Home Loan Banks (FHLB) to fund short-term liquidity needs of member banks is an example of a:
- U.S. Treasury bill
- Government-sponsored enterprise (GSE) discount note (Correct answer)
- Municipal note
- Federal funds loan
Correct answer: Government-sponsored enterprise (GSE) discount note
FHLB discount notes are short-term obligations of a GSE, offering higher yields than T-bills with minimal credit risk due to implicit government backing.
Question 3: The federal funds rate is the interest rate at which:
- The Federal Reserve lends to commercial banks at the discount window
- Depository institutions lend reserve balances to each other overnight (Correct answer)
- Banks charge their most creditworthy corporate borrowers
- The U.S. Treasury auctions new T-bills
Correct answer: Depository institutions lend reserve balances to each other overnight
The fed funds rate is an overnight interbank rate set by market forces (targeted by the FOMC) for reserve balance lending between depository institutions.
Question 4: A revolving credit facility that can be drawn as either a traditional loan or used to support commercial paper issuance is known as a:
- Term loan B
- 364-day facility (Correct answer)
- Swingline facility
- Bridge loan
Correct answer: 364-day facility
A 364-day revolving credit facility avoids the capital charge triggered by multi-year commitments under bank regulatory rules, and is commonly used as CP backstop.
Question 5: Which yield calculation method for short-term instruments accounts for the compounding effect of reinvesting interest at maturity?
- Discount yield
- Bond-equivalent yield
- Effective annual yield (EAY) (Correct answer)
- Simple interest yield
Correct answer: Effective annual yield (EAY)
The effective annual yield compounds periodic returns to express an annualized rate, allowing comparison across instruments with different compounding frequencies.
Question 6: In a bankers' acceptance (BA) transaction, the bank that stamps 'accepted' on the draft is:
- The exporter presenting the draft
- A third-party guarantor with no credit obligation
- Primarily liable for payment at maturity (Correct answer)
- Acting only as a paying agent with no credit risk
Correct answer: Primarily liable for payment at maturity
When a bank accepts a draft, it becomes primarily liable for payment at maturity, transforming the importer's obligation into a bank obligation that trades in the money market.
Certified Treasury Professional Exam Short-Term Investing and Borrowing 2
A company's investment policy statement (IPS) for short-term investments typically prioritizes objectives in which order?