Certified Treasury Professional Exam Short-Term Investing and Borrowing 1 — Questions and Answers
Question 1: Which money market instrument is an unsecured, short-term debt obligation issued by highly rated corporations to fund immediate operating needs?
- Treasury bill
- Commercial paper (Correct answer)
- Banker's acceptance
- Repurchase agreement
Correct answer: Commercial paper
Commercial paper is an unsecured promissory note issued by corporations with strong credit ratings, typically maturing in 1 to 270 days.
Question 2: A repurchase agreement (repo) is best described as:
- An unsecured interbank loan
- A sale of securities with an agreement to repurchase them at a higher price (Correct answer)
- A long-term secured bond issuance
- A revolving credit facility with a bank
Correct answer: A sale of securities with an agreement to repurchase them at a higher price
A repo is a collateralized short-term borrowing where one party sells securities and agrees to buy them back at a slightly higher price, representing the implied interest.
Question 3: The SEC Rule 2a-7 primarily governs which short-term investment vehicle?
- Treasury bills
- Money market mutual funds (Correct answer)
- Banker's acceptances
- Eurodollar deposits
Correct answer: Money market mutual funds
SEC Rule 2a-7 sets quality, maturity, liquidity, and diversification standards for money market mutual funds to maintain stable NAV.
Question 4: Which metric measures the weighted average time until a money market fund's portfolio securities mature or are repriced, reflecting interest rate sensitivity?
- Weighted average maturity (WAM) (Correct answer)
- Duration to worst
- Modified duration
- Weighted average life (WAL)
Correct answer: Weighted average maturity (WAM)
WAM measures the dollar-weighted average maturity of all portfolio holdings, indicating how quickly the fund's yield adjusts to changing interest rates.
Question 5: A treasury manager investing in Treasury bills at a bank discount yield of 4.5% for 91 days would calculate the bond-equivalent yield (BEY) using a day count of:
- 360 days
- 365 days (Correct answer)
- 252 days
- 300 days
Correct answer: 365 days
The bond-equivalent yield converts the discount yield to a 365-day basis, making T-bill yields comparable to coupon-bearing bonds.
Question 6: Which short-term borrowing facility allows a company to issue commercial paper directly to investors while a bank provides a backstop line of credit?
- Asset-backed commercial paper conduit (Correct answer)
- Committed credit facility
- Syndicated term loan
- Extendible commercial paper program
Correct answer: Asset-backed commercial paper conduit
An asset-backed commercial paper (ABCP) conduit pools receivables or other assets and issues CP, backed by a bank liquidity facility as a credit enhancement.
Certified Treasury Professional Exam Short-Term Investing and Borrowing 1
Which money market instrument is an unsecured, short-term debt obligation issued by highly rated corporations to fund immediate operating needs?