FA Treasury and Cash Management 3

Question 1

What is the primary benefit of an intercompany netting arrangement for a multinational corporation's treasury?

Accepted Answer

Offsetting intercompany payables and receivables to reduce the volume and cost of actual fund transfers

Answer

Eliminating the need to file consolidated financial statements

Answer

Avoiding withholding taxes on intercompany dividend payments

Answer

Consolidating all foreign subsidiaries into a single legal entity

Question 2

Which financial instrument is most commonly used by corporate treasurers to convert a floating-rate debt obligation into a fixed-rate obligation?

Accepted Answer

Interest rate swaps

Answer

Currency forward contracts

Answer

Commodity futures contracts

Answer

Equity put options

Question 3

What is the defining feature of a zero-balance account (ZBA)?

Accepted Answer

A subsidiary account automatically swept to zero daily by transferring funds to or from a master account

Answer

An account that earns zero interest regardless of the balance maintained

Answer

A dormant account with no transaction activity for over 12 months

Answer

An account with no minimum balance requirement charged by the bank

Question 4

Foreign exchange transaction risk for a U.S. company arises when:

Accepted Answer

The company has committed to a payment or receipt denominated in a foreign currency that has not yet settled

Answer

The Federal Reserve changes domestic interest rates unexpectedly

Answer

A foreign competitor gains market share in the domestic U.S. market

Answer

Foreign tax rates increase, reducing the after-tax return on overseas subsidiaries

Question 5

A sweep account is used by corporate treasurers primarily to:

Accepted Answer

Automatically transfer excess cash into short-term interest-bearing investments at the end of each day

Answer

Consolidate multiple bank relationships into a single statement

Answer

Aggregate foreign currency deposits into a single domestic account

Answer

Batch employee expense reimbursements for same-day processing

Question 6

What is the primary credit risk concern when investing short-term cash in commercial paper?

Accepted Answer

The issuing corporation defaulting before the paper matures

Answer

Rising interest rates reducing the market value of the paper

Answer

Government intervention restricting liquidity in the commercial paper market

Answer

Currency fluctuations reducing the dollar value of returns

Question 7

When a multinational company uses a 'natural hedge' to manage foreign currency exposure, it:

Accepted Answer

Structures operations so that foreign currency revenues and costs in the same currency offset each other

Answer

Buys currency call options on an organized exchange to cap exchange rate costs

Answer

Deposits all foreign earnings immediately into a U.S. dollar account upon receipt

Answer

Enters into forward contracts to lock in a fixed exchange rate for all foreign transactions