Certified Treasury Professional Exam Short-Term Investing and Borrowing 2

Question 1

A company's investment policy statement (IPS) for short-term investments typically prioritizes objectives in which order?

Accepted Answer

Safety, liquidity, yield

Answer

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:

Accepted Answer

Government-sponsored enterprise (GSE) discount note

Answer

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:

Accepted Answer

Depository institutions lend reserve balances to each other overnight

Answer

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:

Accepted Answer

364-day facility

Answer

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?

Accepted Answer

Effective annual yield (EAY)

Answer

The effective annual yield compounds periodic returns to express an annualized rate, allowing comparison across instruments with different compounding frequencies.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Short-Term Investing and Borrowing 2