CGFO Treasury Operations & Cash Management 2 — Questions and Answers
Question 1: A government finance officer is evaluating bank proposals for depository services. Which factor is MOST critical in assessing bank safety for public deposits?
- Number of branch locations
- FDIC insurance coverage and bank capital adequacy ratios (Correct answer)
- Online banking platform features
- History of charitable contributions
Correct answer: FDIC insurance coverage and bank capital adequacy ratios
FDIC insurance limits and bank capital adequacy ratios directly determine the safety of public deposits held at a financial institution.
Question 2: Under the GFOA's best practices, what is the recommended approach to structuring a government's banking RFP (Request for Proposals)?
- Award solely based on highest interest rates offered
- Evaluate cost, services, safety, and capability comprehensively (Correct answer)
- Select the bank with the most local branches
- Choose the incumbent bank to avoid transition costs
Correct answer: Evaluate cost, services, safety, and capability comprehensively
GFOA recommends a comprehensive RFP evaluation covering cost of services, available services, bank safety, and operational capability.
Question 3: What is 'positive pay' in the context of government treasury operations?
- A system where the bank pays positive interest on checking balances
- A fraud prevention tool where the government transmits issued check data to the bank for verification (Correct answer)
- A payroll method that ensures employees receive pay on positive days
- A compensating balance arrangement that yields positive returns
Correct answer: A fraud prevention tool where the government transmits issued check data to the bank for verification
Positive pay is a fraud prevention service in which the entity transmits a file of issued checks to its bank, which then matches presented items against that file before paying.
Question 4: Which investment is typically PROHIBITED for government entities under most state statutes governing public fund investment?
- U.S. Treasury bills
- Certificates of deposit
- Speculative derivative instruments (Correct answer)
- Repurchase agreements collateralized by U.S. government securities
Correct answer: Speculative derivative instruments
Speculative derivative instruments are generally prohibited for public fund investment because they violate the safety-first principle required by law.
Question 5: A government entity receives a large grant payment in mid-month. The treasury officer should FIRST:
- Immediately invest all funds in long-term securities to maximize yield
- Assess the payment's timing relative to near-term disbursement needs before investing (Correct answer)
- Return the funds to the grantor until the fiscal year-end
- Record the receipt and take no investment action
Correct answer: Assess the payment's timing relative to near-term disbursement needs before investing
Liquidity analysis must precede investment decisions to ensure funds are available for upcoming expenditures before committing to any investment horizon.
Question 6: What does the term 'float' refer to in government cash management?
- The difference between the book balance and bank balance due to in-transit items (Correct answer)
- The interest earned on overnight investments
- The number of days allowed for vendor payment under a prompt payment policy
- Excess cash reserves held above the required minimum balance
Correct answer: The difference between the book balance and bank balance due to in-transit items
Float is the difference between an entity's book balance and its bank balance resulting from checks or payments in transit that have not yet cleared.
Question 7: In a repurchase agreement (repo), the government entity acts as the:
- Borrower of securities
- Lender of cash (buyer of securities with agreement to resell) (Correct answer)
- Guarantor of the counterparty's obligations
- Underwriter of the securities
Correct answer: Lender of cash (buyer of securities with agreement to resell)
In a repo, the government lends cash by purchasing securities with a simultaneous agreement to sell them back at a specified price and date, effectively earning interest.
CGFO Treasury Operations & Cash Management 2
A government finance officer is evaluating bank proposals for depository services.
Which factor is MOST critical in assessing bank safety for public deposits?