CGFM Exam 3 Study Guide Questions and Answers Graded A 2024
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Course
CGFM .
Institution
CGFM .
Which of the following is inappropriate?
a. The person receiving a deposit makes out the deposit slip.
b. The person making out the deposit slip makes the deposit.
c. The person sending out the bill records the transaction in the system.
d. The person recording transactions reconciles the ba...
CGFM Exam 3 Study Guide Questions
and Answers Graded A 2024
Which of the following is inappropriate?
a. The person receiving a deposit makes out the deposit slip.
b. The person making out the deposit slip makes the deposit.
c. The person sending out the bill records the transaction in the system.
d. The person recording transactions reconciles the bank statements. -Correct Answer
✔b. the person making the deposit slip has the ability to alter the deposit. Thus, these
are not compatible duties. Often, the person receiving the deposit also makes out the
deposit slip.
A warrant is:
a. a request for funds drawn on the treasury of a government.
b. a request for funds drawn on a financial institution regulated by the Federal Reserve
System.
c. a request for funds to cover a ZBA.
d. a request for the payment of a recurring electronic payment. -Correct Answer ✔a. A
request for funds drawn on a financial institution is a check. A request for funds to cover
a ZBA is an inter-bank transfer. A request for the payment of a recurring electronic
payment is a request for an electronic funds transfer.
Which of the following should not be done through electronic payments?
a. the payroll of the government
b. payments to retirees
c. a payment for a one-time purchase
d. payments for the purchase of investments -Correct Answer ✔c. The amount of time
involved in setting up an account for an electronic payment would be too costly for a
one-time purchase. This is particularly true if the amount is small.
(T/F) A government should establish a different bank account for each of its funds. -
Correct Answer ✔False. A government should concentrate its accounts for increased
investment potential. The accounting system should be used to track the cash balances
for each fund.
Which of the following is not a duty of the Federal Reserve System?
a. guaranteeing direct loans of the federal government
b. maintaining stability of the financial system
c. conducting monetary policy for the government
d. supervising and regulating banking institutions -Correct Answer ✔a. The Federal
Reserve System does not guarantee loans of the federal government. Loans are
guaranteed by agencies of the federal government.
CGFM Exam 3
,CGFM Exam 3
A county government collects funds from property taxes in late December each year.
The county releases property taxes collected on behalf of school districts on the
following July 1. Which of the following investments would be the most prudent
investment of this money for six months?
a. bond funds
b. commercial paper
c. real estate
d. checking account interest -Correct Answer ✔b. Commercial paper is a short-term
investment instrument, which would be the most appropriate and prudent given the
limited time period. Bond funds are long-term investments, while equities and real
estate have a greater degree of risk. The interest from a checking account would be
much less than the interest from commercial paper.
A county government is able to issue debt securities at an interest rate of 4% and can
invest that money in a U.S. government Treasury bill earning 5%. Which of the following
could prevent this combined transaction from being profitable?
a. total return
b. benchmarking
c. prudent expert rule
d. arbitrage -Correct Answer ✔d. The federal government has arbitrage restrictions on
the amount that can be earned from investments.
Quotes for over-the-counter securities can be obtained on the:
a. NYSE
b. NASDAQ
c. AMEX
d. Chicago Board of Trade -Correct Answer ✔b. The NASDAQ provides the quotes for
securities that are traded over the counter. The other markets provide quotes only for
the securities that are listed on the appropriate exchange.
The prudent expert rule states that:
a. only persons with investment experience should sit on a board
b. board members must hire investment expertise if such knowledge is not otherwise
available
c. it is sufficient for board members to be prudent in investing government funds
d. board members should perform due diligence by reading and understanding
investment manager's reports before the board meetings -Correct Answer ✔b. if the
individual or board overseeing the government's investments does not have the
knowledge or experience needed, then the individual or board must acquire competent
individuals or firms to assist in the investment of those funds.
Which of the following investments types is the most liquid?
a. equities
b. bonds
c. debentures
CGFM Exam 3
, CGFM Exam 3
d. STIFs -Correct Answer ✔d. Short-term investment funds (STIFs) give governments
the flexibility to purchase or redeem investments on a daily basis.
A government has a collateral agreement with its depository bank. The collateral is held
in the bank's trust department. The government is subject to:
a. interest rate risk
b. liquidity risk
c. custodial credit risk
d. systematic risk -Correct Answer ✔c. Securities that are not held by the government or
its agent, and particularly if they are not held in the owner's name, have the greatest
custodial risk.
The Depository Trust Company is responsible for:
a. facilitating the exchange of ownership of securities
b. holding collateral as an interested third party
c. handling Federal Reserve System wire payments
d. validating the experience and knowledge of investment advisers -Correct Answer ✔a.
The Depository Trust Company (DTC) is a central repository through which members
electronically settle trades in corporate, mortgage-backed and municipal securities, and
electronically transfer security certificates.
Explain the difference between direct loans and loan guarantees -Correct Answer ✔A
direct loan exists when a government agency disburses funds directly to the borrower
and is repaid directly by the borrower. A direct loan becomes an outlay for the
government agency at the time the loan is made.
In a guaranteed loan, the loan to the borrower is made by a qualified lending institution,
such as a bank. In these cases, the agency has a liability and has to expend funds to
the lending institution only if the borrower defaults on the loan.
What action results in the government becoming a collector of a guaranteed loan? -
Correct Answer ✔A government agency becomes a collector of a guaranteed loan if the
borrower fails to make payments on the loan to the lending institution. In these cases,
the agency is obligated to pay off the loan to the original lending institution and it
becomes both the lender and collector of the loan.
What are the four C's of credit?
a. character, capacity, communication, collectability
b. character, communication, collateral, capital
c. character, capacity, collateral, capital
d. character, capital, collectability, communication -Correct Answer ✔c. The four C's of
credit are character, capacity, collateral, and capital. Character refers to the borrower's
willingness to pay, capacity refers to ability to pay, collateral is the property that secures
the loan, and capital is the financial interest the borrower has in the loan.
CGFM Exam 3
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