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

Netting calculates net positions among subsidiaries so only the net amounts are transferred, reducing transaction costs and foreign exchange exposure.

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

An interest rate swap allows a company to exchange floating-rate payments for fixed-rate payments, eliminating uncertainty from variable interest rate exposure.

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

A ZBA is automatically zeroed out each business day through transfers to or from a central master account, centralizing cash while allowing controlled disbursements.

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

FX transaction risk exists when exchange rates change between the date a foreign currency transaction is initiated and the date it settles, altering the USD value.

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

Sweep accounts automatically move surplus cash above a set threshold into overnight investments like money market funds, maximizing the return on idle balances.

FA - Finance Analyst Practice Test

FA - Finance Analyst Practice Test

FA Treasury and Cash Management 3