FIN302 CTP Certification Review Exam 2023 with complete solution

FIN302 CTP Certification Review Exam 2023 with complete solution. A cash manager at a retailer forecasts a positive collected cash position for the end of the current day. The company has an overdraft facility at 10%, a separate investment account earning 8% before taxes, an earnings credit rate of 8% and an outstanding single payment note at 9.5% maturing in 1 week. This month's bank service fees are expected to exceed the earnings credit. Which of the following intra-day options would be the MOST economically positive for the company? (A) Leave the funds in the account. (B) Redeem the single payment note. (C) Prepay administrative expenses. (D) Transfer funds to the investment account. -Ans -A 2.A.3 Which of the following BEST describes an advantage of a company going public? (A) Increased management control (B) Increased public disclosure (C) Increased managerial flexibility (D) Increased liquidity -Ans -D 4.C.1 When a short-term loan is paid with a lump sum payment and the payment includes both interest and principal, the loan is often referred to as a: (A) single payment note. (B) material payment note. (C) balloon payment note. (D) commercial note. -Ans -A 3.B.3 The Company J portfolio consists of two stocks, 65% of Stock A with a return of 7.63% and 35% of Stock B with a return of 3.89%. What is the Company J portfolio return? (A) 1.86% (B) 5.10% (C) 6.32% (D) 18.57% -Ans -C 4.D.8 What does a company with a restrictive current asset investment strategy typically have? (A) High financing costs (B) Low accounts receivable balances (C) High inventory levels (D) Low tax liabilities -Ans -B 3.A.5 Which of the following is a ratio that is often used by commercial banks to measure a company's leverage and does not include the effect of assets that are difficult to value or are NOT easily converted to cash? (A) Long-term debt to capital (B) Debt to tangible net worth (C) Total liabilities to total assets (D) Cash flow to total debt -Ans -B 3.A.2 Which of the following can be considered key responsibilities of daily cash management? I. Overseeing compensation for bank services II. Management of short-term borrowing and investing III. Projecting future cash shortages and surpluses (A) I only (B) I and II only (C) II and III only (D) I, II, and III -Ans -D 1.A.3 Senior management at ABC Company plans to make a large capital expenditure to bolster its infrastructure exactly one year from now. Their primary concern is to preserve the current capital position until the expected cash outlay. The majority of the cash at ABC Company is held in treasury notes, but management would like to also invest some of the money into corporate bonds and money market funds. Which investment objective BEST suits the needs of ABC Company? (A) Exposure Horizon (B) Diversification (C) Liquidity (D) Safety -Ans -D 5.C.2 What is the earnings credit the company is receiving for this month? (A) $416.10 (B) $4,160.96 (C) $449.38 (D) $457.71 -Ans -A 1.D.4 Using the information provided for question 10, what would the earnings credit change to if the company negotiated a 50% decrease in deposit float ? (A) $4,577.05 (B) $457.71 (C) $449.38 (D) $503.48 -Ans -B 1.D.4 The treasurer of a corporation is negotiating with one of his/her suppliers to allow the corporation to have 30days to pay the supplier's invoices. The treasurer is arranging: (A) short-term financing. (B) revolving credit agreement. (C) factoring of receivables. (D) uncommitted line of credit. -Ans -A 2.B.6 When using the Internet to access auction markets, companies may use certificate authorities to reduce their exposure to which of the following types of risk? (A) Credit (B) Valuation (C) Counterparty (D) Foreign exchange -Ans -C 5.B.3 A company can pay their supplier by check or by electronic transfer. If the difference between the value dateof the payment methods is 4 days from the company's perspective, what discount should the supplier offer them to get the company to pay on the same day as they did when they paid by check (rounded to the nearest 100th percent)? Assume no difference in the cost of the payment method, an opportunity cost of 8%, and float neutrality. (A) 2.00% (B) 0.09% (C) 0.87% (D) 0.02% -Ans -B 2.A.3 Which of the following is a tool that companies use to obtain a quantitative rating of a financial institution's level of service? (A) Relationship review (B) Score card (C) Service agreement (D) CAMELS rating -Ans -B 1.D.3 An airline wants to lock in the price of the jet fuel it needs to purchase to satisfy the peak in-season demand for travel. The airline wants to manage its exposure to fluctuations in fuel prices. What type of exposure is this? (A) Translation (B) Delivery (C) Commodity (D) Speculative -Ans -C 5.B.2 A French exporter sells goods to a foreign buyer in euros and wants to guarantee that payment is made by the buyer. The exporter would MOST LIKELY require a(n): (A) bankers' acceptance. (B) documentary collection. (C) letter of credit. (D) open account. -Ans -C 4.B.3 The right of stockholders to purchase, on a pro-rata basis, any new shares issued by the company is referred to as: (A) preemptive right. (B) right of first refusal. (C) existing ownership right. (D) prevention of dilution right. -Ans -A 1.F.2 After a recent review of its insurance policies, a petroleum products company determines it needs to re-evaluate its risk exposure to potentially reduce its insurance premiums. The company has operated in two locations for 20 years but only produces and stores petroleum at one location. In doing so, the risk manager determine the following exposures: *The number of employee workers compensation claims due to injuries while loading trucks has increased 25% in the past 12 months. *The primary tank used for petroleum storage is 13 years old and standard life of tanks of this model is 20 years. *There is only one road into the current petroleum storage facility. Given the above information, if the risk manager constructs a second road into the petroleum storage facility, what risk management strategy is being used? (A) Risk avoidance (B) Transference of risk (C) Risk mitigation (D) Keep the risk -Ans -C 5.B.2 Which of the following contributes MOST to the marketability of a security? (A) An investment-grade rating (B) An irrevocable letter of credit guarantee (C) A return at or above the yield curve (D) A large, active secondary market -Ans -D 3.B.2 A large, mature, diversified and publicly traded company sells the smallest of its business segments to a strategic buyer for cash. It uses the proceeds to pay off all bank debt and subordinated debenture debt on its books. The company believes the stock is trading at a reasonable price and continues to pay a regular, steady dividend to shareholders. Management's strategy is to embark on an aggressive growth plan including a major acquisition. Based on the above information, if the company uses the trade-off theory in considering its WACC, how will it finance its growth? (A) By using long-term debt (B) By issuing Class A stock (C) By using retained earnings (D) By issuing Class B stock -Ans -A 4.A.1 The treasury manager of a privately held company is looking to finance new equipment that has a useful life of 5 years. What type of financing would the Treasury Manager MOST LIKELY employ to finance the equipment? (A) Equity shares (B) Long-term bond (C) High-yield bond (D) Installment term loan -Ans -D 4.B.5 A retail brokerage firm is MOST like which one of the following types of financial institutions? (A) Captive finance companies (B) Factoring companies (C) Investment banks (D) Insurance companies -Ans -C 1.D.1 A U.S. company has a secured committed line of credit of $5.5 million and has an available balance of $4 million. The company successfully transmitted a $5.5 million wire transfer instruction out to the bank via SWIFT. The bank contacted the company and informed it that the wire transfer would not be processed. What is the MOST LIKELY reason the bank gave the company? (A) Wires exceeding $5 million cannot be transmitted using SWIFT. (B) The bank imposed a guidance line of credit on the account. (C) The company exceeded its balance requirement. (D) The bank refused funding on the company's discretionary line of credit. -Ans -B 3.B.3 A large retailer is preparing to accept credit cards and anticipates monthly credit card sales of $1,000,000. If the terms with the acquiring bank include bundled allocated fees of 6% and the retailer wishes to delay fee payment as long as possible, what should the retailer do? (A) Accept gross settlement. (B) Place a hold on consumer credit limits. (C) Receive net settlement. (D) Delay funds transfer to card-issuing banks. -Ans -A 2.B.8 Examples of traditional factors used in making a credit decision include which of the following? I.Capacity II. Capital III.Compliance IV. Character (A) IV only (B) I and III only (C) I, II, and IV only (D) I, II, III, and IV -Ans -C 3.C.1 A company has decided to manage its short-term investment portfolio in- house. It is looking for enhanced capital gains as well as the ability to sell the instruments on the secondary market at a premium. The investment manager has forecasted the interest rates shown below: Which investment strategy should be employed by the company? (A) Passive strategy (B) Matching strategy (C) Tax-based strategy (D) Total-return strategy -Ans -D 3.B.2 Brazilian corporation purchases finished products from a German subsidiary and sells raw materials to the subsidiary several times in one month. To minimize foreign exchange transaction costs, the Brazilian corporation's cash manager would MOST LIKELY use: (A) bilateral netting. (B) multilateral netting. (C) forward options. (D) pooling. -Ans -A 2.A.2 Optimal dividend policy is one that does all of the following EXCEPT: (A) maintain adequate retained earnings for future growth. (B) maximize shareholder value. (C) distribute corporate income to investors. (D) balance tax shield benefits against agency costs. -Ans -D 4.A.1 ABC Company, a leading provider of office supplies, has successfully implemented EDI based on a request from one of its customers. ABC will not only benefit from the strategic alliance that will result, but as more of ABC's customers adopt the program, ABC will also experience a positive impact on its: (A) EFT costs. (B) C2C levels. (C) value added networks. (D) inventory levels. -Ans -D 5.A.2 A company has asked its marketing, payroll and sales teams to collaborate in finding a solution that could augment its customer base, reduce payroll cost and increase sales. The solution has to be market ready. Which of the following will serve all 3 purposes? (A) Ghost cards (B) Smart cards (C) PIN based cards (D) Stored value card -Ans -D 2.B.4 A portfolio manager purchases a floating rate mortgage backed security that would currently provide a 4% yield to the company. Since mortgage rates have been fluctuating significantly over the past month, the manager is thinking about entering into an interest rate swap to hedge against the rate movements. Although the manager would remove most of the price sensitivity of the asset by executing the swap, it would also lower the total yield on the investment due to swap costs. What objective in the company investment policy is guiding the portfolio manager's decision? (A) Risk analysis (B) Risk/return trade off