GAC Investment Strategies 2

Question 1

Which investment strategy requires a governmental entity to match the maturity of investments with the timing of anticipated cash outflows?

Accepted Answer

Cash flow dedication

Answer

Cash flow dedication (or asset-liability matching) structures the investment portfolio so that maturities align directly with specific future expenditure obligations.

Question 2

Under GASB standards, which of the following is NOT considered a custodial credit risk for governmental investments?

Accepted Answer

Securities registered in the government's name held by a third-party custodian

Answer

Securities registered in the government's name and held by a third-party custodian are not exposed to custodial credit risk because the government retains legal ownership.

Question 3

A local government's investment policy limits portfolio duration to 2.5 years. This restriction primarily manages which type of risk?

Accepted Answer

Interest rate risk

Answer

Portfolio duration limits directly control interest rate risk by restricting how sensitive the portfolio's market value is to changes in interest rates.

Question 4

Which GASB statement requires governments to disclose investment policies and key risks in notes to financial statements?

Accepted Answer

GASB 40

Answer

GASB Statement No. 40 amended GASB 3 to require disclosure of deposit and investment risks including credit, concentration, interest rate, and foreign currency risk.

Question 5

A government pools its idle cash with neighboring jurisdictions into a local government investment pool (LGIP). Under GASB 79, a qualifying LGIP is measured at:

Accepted Answer

Amortized cost

Answer

GASB 79 allows qualifying external investment pools that meet strict criteria to measure pool investments at amortized cost rather than fair value.

(GAC) Governmental Accounting Certification Practice Test

(GAC) Governmental Accounting Certification Practice Test

GAC Investment Strategies 2