CFM CFM Treasury & Cash Management 2

Question 1

Which financial instrument allows a company to hedge against rising interest rates on a floating-rate loan?

Accepted Answer

Interest rate swap (pay-fixed, receive-floating)

Answer

In a pay-fixed, receive-floating interest rate swap, the company pays a fixed rate and receives the floating rate, effectively converting variable loan costs to fixed costs.

Question 2

What is the purpose of a revolving credit facility for a corporation?

Accepted Answer

To provide flexible short-term borrowing capacity that can be drawn and repaid repeatedly

Answer

A revolving credit facility (revolver) gives companies the ability to borrow up to a set limit, repay, and re-borrow as needed, providing flexible liquidity support.

Question 3

When evaluating short-term investment options, a CFM should prioritize which three characteristics in order?

Accepted Answer

Safety, liquidity, return

Answer

For corporate treasury, preserving capital (safety) comes first, followed by the ability to access funds quickly (liquidity), with return as a secondary objective.

Question 4

What is the net present value (NPV) of a $10,000 cash inflow received one year from now at a 5% discount rate?

Accepted Answer

$9,524

Answer

NPV = $10,000 / (1 + 0.05) = $9,523.81, rounded to $9,524, representing today's value of that future cash flow.

Question 5

Which ratio best indicates a company's ability to meet its most immediate obligations without relying on inventory?

Accepted Answer

Quick ratio (acid-test ratio)

Answer

The quick ratio (cash + marketable securities + receivables) / current liabilities excludes inventory, providing a more stringent test of immediate liquidity.

CFM - Certified Finance Manager Practice Test

CFM - Certified Finance Manager Practice Test

CFM CFM Treasury & Cash Management 2