Certified Treasury Professional Exam Short-Term Investing and Borrowing 3

Question 1

Under a securities lending program, the cash collateral received by the lender is typically reinvested in:

Accepted Answer

Short-term, high-quality money market instruments

Answer

Cash collateral from securities lending is reinvested in high-quality short-term instruments to generate a spread while maintaining liquidity for collateral return.

Question 2

A company borrows $10 million under a revolving credit facility with a commitment fee of 25 bps on the undrawn portion. If $4 million is drawn, the annual commitment fee is based on:

Accepted Answer

$6 million undrawn balance

Answer

Commitment fees are charged on the undrawn (available but unused) portion of a revolving credit facility, compensating the bank for holding capacity.

Question 3

Which short-term investment is NOT subject to federal income tax at the investor level for U.S. taxable entities?

Accepted Answer

Municipal notes

Answer

Interest income from municipal notes is generally exempt from federal income tax, making them attractive for taxable corporate investors depending on after-tax yield.

Question 4

A treasury manager evaluating credit risk in the short-term investment portfolio should primarily assess the issuer's:

Accepted Answer

Short-term credit ratings from NRSRO agencies and financial ratios

Answer

Short-term credit ratings (e.g., Moody's P-1, S&P A-1) from NRSROs and liquidity ratios are the primary tools for assessing credit risk in money market investments.

Question 5

The SOFR (Secured Overnight Financing Rate) replaced LIBOR as the preferred reference rate for floating-rate instruments primarily because SOFR is:

Accepted Answer

Based on actual repo transactions and is transactions-based

Answer

SOFR is based on actual overnight Treasury repo transactions, making it more robust and manipulation-resistant than LIBOR, which relied on bank submissions.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Short-Term Investing and Borrowing 3