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CTP (ABC) practice questions

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Question 1Treasury Management and Cash Positioning

Which statement best describes cash positioning?

  1. Projecting cash flows for the coming fiscal year by unit
  2. Recording accrued liabilities in the ledger at month end
  3. Determining available cash by bank account at a point in time Correct answer.
  4. Investing surplus cash in long-dated corporate bonds

Explanation

Cash positioning determines, account by account, how much cash is actually available at a specific moment, typically at the start of the business day. It relies on bank-reported balances adjusted for float, holds, and expected activity. Longer-horizon projections belong to cash forecasting rather than positioning.

Question 2Treasury Management and Cash Positioning

Which balance reflects deposits credited to the account net of availability float?

  1. Collected balance Correct answer.
  2. Book balance
  3. Ledger balance
  4. Compensating balance

Explanation

The collected balance reflects funds the bank has actually collected and made available, so it excludes deposits still subject to availability float. The ledger balance is the bank's own record before adjusting for uncollected items. Treasuries position cash on collected or available balances because those are the funds that can be used.

Question 3Treasury Management and Cash Positioning

What is the primary purpose of a zero balance account (ZBA)?

  1. To eliminate the need for bank reconciliation each month
  2. To earn interest on surplus balances held overnight
  3. To consolidate all subsidiary receipts into one investment pool
  4. To hold a zero balance and fund only items presented for payment Correct answer.

Explanation

A ZBA is a disbursement account maintained at a zero ledger balance; the bank funds it only as checks and electronic debits present. This keeps idle cash in the master account, where it can be invested or used to reduce borrowing. The arrangement does not remove the need for reconciliation.

Question 4Treasury Management and Cash Positioning

What is the primary benefit of a lockbox?

  1. It allows the company to delay payments to suppliers
  2. It converts customer checks into wires automatically
  3. It removes the need to reconcile the collection account
  4. It speeds deposit and reduces mail and processing float Correct answer.

Explanation

In a lockbox arrangement, customers mail payments to a bank-managed post office box, and the bank processes and deposits them. This shortens the interval between customer mailing and funds availability, reducing mail and processing float. It does not change reconciliation duties or payment terms.

Question 5Treasury Management and Cash Positioning

Which payment method is typically same-day final and irrevocable?

  1. Corporate check
  2. Wire transfer Correct answer.
  3. Bank draft
  4. ACH credit

Explanation

Wire transfers settle through real-time or same-day funds transfer systems and, once executed, are generally final and irrevocable. ACH entries can be returned or reversed under applicable operating rules. Checks and drafts remain provisional until they clear.

Question 6Treasury Management and Cash Positioning

Cash concentration is best described as which activity?

  1. Moving balances from operating accounts into a central account Correct answer.
  2. Spreading cash across many accounts to reduce bank risk
  3. Delaying supplier payments to preserve cash
  4. Investing idle cash in money market funds each day

Explanation

Cash concentration sweeps or transfers balances from decentralized operating and depository accounts into a central master account. This gives treasury visibility, control, and a larger pool for investment or debt reduction. Spreading cash across accounts is the opposite of concentration.

Question 7Treasury Management and Cash Positioning

In a controlled disbursement account, the company typically:

  1. Funds the account each day based on the bank's presentment notice Correct answer.
  2. Lets the bank invest any excess balance overnight
  3. Maintains a large permanent balance to cover all checks
  4. Uses the account only for receiving customer payments

Explanation

The bank provides an early notice of the checks and debits that will clear that day, and the company funds exactly that amount. This minimizes idle balances sitting in the disbursement account. Receipts are handled in separate depository accounts.

Question 8Treasury Management and Cash Positioning

A short-term cash forecast typically covers which horizon?

  1. A rolling period of days to several weeks Correct answer.
  2. The full accounting cycle through the annual audit
  3. One to five years of strategic capital spending
  4. Only the current day's bank-reported balances

Explanation

Short-term forecasts support daily and weekly liquidity decisions, so they usually span days to several weeks on a rolling basis. Long-range capital plans and annual budgets are separate forecasting exercises. Same-day bank balances support positioning, not forecasting.

Question 9Treasury Management and Cash Positioning

A company wants a $50,000 minimum compensating balance and expects $20,000 of debits to clear today. What target balance should it fund?

  1. $20,000
  2. $70,000 Correct answer.
  3. $30,000
  4. $50,000

Explanation

The target balance equals the desired minimum balance plus the debits expected to clear that day: $50,000 + $20,000 = $70,000. Funding less would drive the account below the required minimum once the debits post.

Question 10Treasury Management and Cash Positioning

In an automated sweep arrangement, when the collected balance exceeds the target, the bank typically:

  1. Funds the account from the concentration account
  2. Returns the excess to the paying customers
  3. Invests the excess in an overnight instrument Correct answer.
  4. Freezes the excess until the next statement cycle

Explanation

An excess-over-target sweep moves surplus collected funds into an overnight investment, such as a money market fund or repo, so the cash earns a return. Funding from the concentration account occurs when the balance falls below target. Customer funds are never returned to payers.

Question 11Treasury Management and Cash Positioning

How does Check 21 generally affect availability float?

  1. It has no effect because clearing rules are unchanged
  2. It reduces float by allowing electronic presentment of substitute checks Correct answer.
  3. It eliminates float entirely by requiring same-day settlement
  4. It increases float because paper checks move more slowly

Explanation

Check 21 permits banks to create substitute checks from electronic images and present them for payment, removing much of the physical transportation time. That shortens the interval between deposit and final settlement, reducing availability float. It does not eliminate float altogether.

Question 12Treasury Management and Cash Positioning

What is a primary benefit of remote deposit capture?

  1. It guarantees that deposited checks will not be returned
  2. It lets the company issue payments without bank approval
  3. It removes the need to reconcile the depository account
  4. It shortens deposit transit time by scanning checks at the office Correct answer.

Explanation

With remote deposit capture, the company scans checks and transmits images for deposit, avoiding physical transport of paper to the bank. This reduces deposit transit and availability float. Returned items and reconciliation still occur as before.

Question 13Treasury Management and Cash Positioning

Notional pooling differs from physical pooling in that notional pooling:

  1. Is prohibited for all corporate treasury operations
  2. Applies only to disbursement accounts, never to receipts
  3. Offsets balances across accounts without moving the funds Correct answer.
  4. Requires daily physical transfers into a master account

Explanation

In notional pooling, the bank calculates interest on the combined balance of participating accounts while the funds stay in place. Physical pooling, by contrast, actually moves cash into a master account. Notional pooling typically requires a legally enforceable right of set-off.

Question 14Treasury Management and Cash Positioning

An in-house bank primarily allows a multinational to:

  1. Avoid foreign exchange exposure entirely
  2. Centralize payments and funding for its subsidiaries Correct answer.
  3. Replace its general ledger with a bank ledger
  4. Eliminate all local bank relationships immediately

Explanation

An in-house bank is a treasury structure that centralizes payment processing, funding, and sometimes FX for group entities, often using intercompany accounts. It improves control and reduces external bank costs. It does not eliminate local banks, FX risk, or the general ledger.

Question 15Treasury Management and Cash Positioning

BAI2 and MT940 files are used by companies to:

  1. File tax returns with the relevant government authority
  2. Calculate the weighted average cost of capital
  3. Receive bank account balances and transaction details Correct answer.
  4. Transmit payroll instructions to a local bank

Explanation

BAI2 and MT940 are standard bank reporting formats that carry balance and transaction information into treasury systems for positioning and reconciliation. They are inbound reporting rather than outbound payment messages. Payment initiation uses formats such as ISO 20022 pain messages or proprietary bank files.

Question 16Treasury Management and Cash Positioning

An account analysis statement typically reports which items?

  1. The company's projected cash forecast for next quarter
  2. The credit rating assigned to the company by the bank
  3. Balances, activity volumes, and fees for the earnings credit Correct answer.
  4. The number of employees authorized to sign checks

Explanation

An account analysis statement itemizes average balances, transaction volumes, and service charges, then applies an earnings credit to offset fees. Treasury uses it to verify charges and evaluate bank pricing. It is not a forecast, a credit rating, or a signatory list.

Question 17Treasury Management and Cash Positioning

Days sales outstanding (DSO) is calculated as:

  1. Accounts receivable divided by average daily credit sales Correct answer.
  2. Average daily sales divided by accounts receivable
  3. Cost of goods sold divided by average inventory
  4. Accounts payable divided by average daily purchases

Explanation

DSO measures the average number of days needed to collect receivables, computed as receivables divided by average daily credit sales. The inverse ratio would fall as receivables rise, which is not a days measure. The other formulas describe inventory and payables metrics.

Question 18Treasury Management and Cash Positioning

The cash conversion cycle equals which combination?

  1. DIO plus DSO plus DPO
  2. DPO minus DSO minus DIO
  3. DSO plus DPO minus DIO
  4. DIO plus DSO minus DPO Correct answer.

Explanation

The cash conversion cycle measures how long cash is tied up in operations: days inventory outstanding plus days sales outstanding minus days payable outstanding. Subtracting DPO reflects the financing benefit of paying suppliers later. The other combinations misstate the direction of that benefit.

Question 19Treasury Management and Cash Positioning

Disbursement float is the difference between:

  1. Book balance and bank ledger balance while checks are outstanding Correct answer.
  2. The compensating balance and the minimum required balance
  3. The bank's collected balance and the target balance
  4. The target balance and the actual ledger balance

Explanation

Disbursement float exists because a company reduces its book balance when it writes a check, while the bank does not reduce its ledger balance until the check presents. That timing gap is the float. Collection float, by contrast, arises from deposits in transit.

Question 20Treasury Management and Cash Positioning

Real-time gross settlement (RTGS) systems are characterized by:

  1. Immediate, individual settlement of each payment in central bank money Correct answer.
  2. Batch netting of payments at the end of each business day
  3. Guaranteed reversal of payments within twenty-four hours
  4. Deferred settlement with multilateral netting of positions

Explanation

RTGS systems settle each payment individually and immediately across central bank accounts, without netting across participants. This removes settlement risk but requires sufficient intraday liquidity. Batch netting describes deferred net settlement systems instead.

Question 21Treasury Management and Cash Positioning

A parent and two subsidiaries have intercompany obligations: Subsidiary A owes B $10 million, B owes C $8 million, and C owes A $6 million. If all payments are multilaterally netted, what amount must actually be settled?

  1. $4 million Correct answer.
  2. $8 million
  3. $24 million
  4. $2 million

Explanation

Net each entity's position: A pays $10 million and receives $6 million, so it pays $4 million net; B receives $10 million and pays $8 million, netting $2 million in; C receives $8 million and pays $6 million, netting $2 million in. Only A's $4 million net payment must move, versus $24 million gross. Multilateral netting therefore reduces funding and settlement exposure substantially.

Question 22Treasury Management and Cash Positioning

A bank ledger balance is $800,000. Deposits of $60,000 are held as uncollected, and checks totaling $90,000 have been written but not yet presented. What is the available balance?

  1. $650,000
  2. $740,000 Correct answer.
  3. $890,000
  4. $710,000

Explanation

Available balance deducts uncollected or held deposits from the ledger balance: $800,000 minus $60,000 equals $740,000. Checks that have been written but not presented have not yet reduced the bank's ledger balance, so they are not deducted here. They will reduce availability when they present.

Question 23Treasury Management and Cash Positioning

A company has $10 million of excess cash for 30 days. An overnight sweep earns 4.20%, while leaving the funds in the operating account earns an earnings credit of 3.75%. Using a 360-day year, what is the incremental income from sweeping?

  1. $1,125
  2. $4,500
  3. $3,750 Correct answer.
  4. $2,250

Explanation

The yield advantage is 4.20% minus 3.75%, or 0.45%. Applied to $10 million for 30 of 360 days: $10,000,000 times 0.0045 times 30/360 equals $3,750. The comparison assumes fees are equally offset either way, so only the yield difference matters.

Question 24Treasury Management and Cash Positioning

A treasury analyst compares a 13-week rolling forecast with actual results. Which measure best captures average absolute forecast error as a percentage of actual cash flow?

  1. Cumulative variance of forecasts
  2. Mean absolute percentage error Correct answer.
  3. Correlation of forecast and actual
  4. Regression R-squared of the forecast

Explanation

Mean absolute percentage error averages the absolute deviation of each forecast from actual, scaled by the actual value, so it is comparable across periods and entities. Cumulative variance nets errors and can hide large offsetting misses. Correlation and R-squared measure association or fit, not error magnitude.

Question 25Treasury Management and Cash Positioning

A bank's ability to operate a notional cash pool depends primarily on which legal condition?

  1. An investment-grade credit rating for the company
  2. An enforceable right of set-off in the relevant jurisdiction Correct answer.
  3. Daily physical transfers between the pooled accounts
  4. Approval from the company's external auditor

Explanation

Notional pooling nets balances for interest purposes without moving cash, so the bank must be able to offset credit and debit balances if a participant defaults. That requires a legally enforceable right of set-off confirmed by local counsel. Physical transfers, credit ratings, and audit approval do not create that legal right.

Question 26Treasury Management and Cash Positioning

Daily cash positioning primarily produces which output?

  1. A rolling twelve-month capital expenditure plan approved by the board of directors
  2. A consolidated view of available balances and expected same-day flows Correct answer.
  3. A schedule of statutory audit fees organized by legal entity and fiscal quarter
  4. A summary of outstanding equity awards prepared for the compensation committee

Explanation

Daily cash positioning aggregates bank balances, holds, and expected same-day debits and credits so treasury can determine funding or investment needs. It is an operational, short-horizon process rather than a long-range planning or financial reporting exercise.

Question 27Treasury Management and Cash Positioning

Available balance differs from ledger balance primarily because available balance:

  1. Excludes all deposits made during the prior calendar month until they are audited
  2. Is calculated only at month-end by the corporate accounting department
  3. Reflects holds and uncollected funds that reduce usable cash Correct answer.
  4. Includes future payroll that has not yet been processed by the payroll team

Explanation

A ledger balance records posted transactions, while an available balance adjusts for deposits not yet collected, holds, and other restrictions on usable funds. Treasury relies on available balance to decide what cash can actually be deployed today.

Question 28Treasury Management and Cash Positioning

In a zero-balance account structure, what typically happens at the end of each business day?

  1. Excess funds are automatically invested in a one-year term deposit at the bank
  2. The account retains a fixed minimum balance established in the company's investment policy
  3. The account is closed at the end of each day and reopened the next morning
  4. Balances are swept to or from a master account so the ZBA returns to zero Correct answer.

Explanation

A zero-balance account is designed to end each day at a zero balance by sweeping surplus funds to a master account and funding any deficit from that master account. This reduces idle balances and centralizes liquidity control.

Question 29Treasury Management and Cash Positioning

A payment factory centralizes which treasury activity?

  1. Issuance of equity shares to institutional investors through a registered offering
  2. Preparation of consolidated tax returns for all domestic and foreign subsidiaries
  3. Execution and processing of payments for affiliated entities Correct answer.
  4. Negotiation of revolving credit facility covenants with the lead arranger bank

Explanation

A payment factory consolidates payment execution, formatting, authorization, and settlement for multiple affiliates, often through a shared service center or in-house bank. It improves standardization and control over disbursements rather than performing capital raising or tax filing.

Question 30Treasury Management and Cash Positioning

An earnings credit rate (ECR) on a bank account analysis is used to:

  1. Calculate the minimum balance required under check availability rules
  2. Determine the foreign exchange rate applied to outgoing wire transfers
  3. Set the interest rate paid on overnight loans between commercial banks
  4. Offset service charges with a credit for balances maintained Correct answer.

Explanation

The ECR is a notional rate applied to collected balances so that the resulting credit can offset bank service charges. It allows a company to pay for bank services through compensating balances rather than explicit fees.

Question 31Treasury Management and Cash Positioning

Regulation CC availability schedules primarily govern:

  1. The maximum interest rate a bank may pay on a business checking account
  2. How quickly a bank must make deposited funds available for withdrawal Correct answer.
  3. The file format banks use to send balance information to corporate clients
  4. The cutoff time for submitting same-day ACH credit entries to the network

Explanation

Regulation CC sets maximum check hold periods and related funds-availability rules for depository institutions. It protects depositors by limiting how long a bank can delay access to deposited funds.

Question 32Treasury Management and Cash Positioning

A cash forecast has consistently projected inflows above actual inflows for six months. Which measure best reveals this pattern?

  1. The number of line items included in the forecast model
  2. The length of the rolling forecast horizon in weeks
  3. Mean absolute percentage error across all forecast line items
  4. Mean forecast bias Correct answer.

Explanation

Forecast bias measures the average signed error, so persistent overprojection of inflows produces a nonzero bias in a consistent direction. Absolute error measures such as MAPE show the size of misses but not whether the forecast is systematically high or low.

Question 33Treasury Management and Cash Positioning

Same-day ACH is most appropriate for which payment?

  1. A cross-border supplier payment in euros that requires final settlement
  2. A large interbank settlement between two financial institutions in the payment system
  3. A payroll funding transfer that can settle within three business days
  4. A time-sensitive domestic vendor payment that must settle today Correct answer.

Explanation

Same-day ACH supports domestic credit transfers that need faster settlement than the standard ACH schedule while remaining relatively low in value. Cross-border euro payments and large interbank settlements use other systems such as correspondent banking or RTGS.

Question 34Treasury Management and Cash Positioning

A company uses physical cash pooling with a target balance in each participating account. What is the purpose of the target balance?

  1. To leave a defined operating buffer in the local account before sweeping excess Correct answer.
  2. To set the maximum overdraft that the bank may permit on the master concentration account
  3. To fix the interest rate that will be applied to all intercompany loans for the year
  4. To determine the statutory reserve requirement that applies to each participating subsidiary

Explanation

In physical pooling, each participant keeps a target operating balance so local payments can clear without frequent funding transfers. Balances above the target are swept to the concentration account, and shortfalls may be funded from it.

Question 35Treasury Management and Cash Positioning

Which cash flow is classified as a financing activity?

  1. Cash paid to acquire property, plant, and equipment for a new factory
  2. Proceeds from drawing on a revolving credit facility Correct answer.
  3. Cash received from customers in settlement of outstanding trade receivables
  4. Interest received on short-term investments held in a money market fund

Explanation

Drawing on a revolving credit facility is a borrowing transaction and is reported as a financing cash inflow. Customer collections are operating, capital expenditure is investing, and interest received is typically operating or investing depending on the accounting framework.

Question 36Treasury Management and Cash Positioning

A treasury team begins an account rationalization project. Which step should come first?

  1. Move every operating account to a zero-balance account structure
  2. Inventory accounts by legal entity, purpose, and signatory Correct answer.
  3. Close all accounts held at non-core banks before the end of the quarter
  4. Negotiate a new earnings credit rate with every relationship bank

Explanation

Account rationalization starts with a complete inventory so treasury can see which accounts exist, why they are used, and who controls them. Closing accounts or restructuring sweeps before that inventory risks disrupting operations and losing necessary local presence.

Question 37Treasury Management and Cash Positioning

Which item qualifies for inclusion in a company's liquidity buffer of cash plus committed revolver availability?

  1. Unrestricted cash held in a U.S. operating account at a core bank Correct answer.
  2. Cash held in an escrow account restricted to a specific construction project
  3. A short-term investment with a 90-day lockup and no early redemption
  4. Cash trapped in a subsidiary subject to exchange controls

Explanation

A liquidity buffer should include only resources that are readily available to meet obligations, such as unrestricted cash and undrawn committed facilities. Trapped, restricted, or locked-up balances cannot be relied on in a stress scenario.

Question 38Treasury Management and Cash Positioning

A supplier payment is debited from the company's account on Monday, but the bank assigns the beneficiary value on Wednesday. For the company's cash positioning, what is the effect on Monday?

  1. Ledger balance falls Monday; available balance may use the Wednesday value date Correct answer.
  2. The available balance rises on Monday because the payment is still in transit
  3. Both the ledger balance and the available balance fall on Wednesday only
  4. Neither balance changes until the beneficiary bank confirms receipt of the funds

Explanation

The ledger balance records the debit when the bank posts the transaction, which is Monday in this case. The available balance may follow the bank's value date, so treasury must distinguish posting date from value date when positioning cash.

Question 39Treasury Management and Cash Positioning

A company's investment policy requires same-day access to swept cash. Which sweep vehicle best meets that constraint?

  1. A one-year bank term deposit that carries an early withdrawal penalty
  2. A commercial paper program with a 30-day maturity and no secondary market
  3. A 90-day negotiable certificate of deposit issued by a commercial bank
  4. A government money market fund with daily liquidity Correct answer.

Explanation

A government money market fund with daily liquidity allows same-day or next-day redemption while preserving principal stability. Term deposits, certificates of deposit, and unmarketable commercial paper impose maturity or penalty constraints that conflict with same-day access.

Question 40Treasury Management and Cash Positioning

A company wants to prevent unauthorized ACH debits from hitting its operating account. Which control is most directly designed for this purpose?

  1. An ACH debit filter or block Correct answer.
  2. Positive pay matching for outgoing checks issued by the company
  3. Daily reconciliation of all bank accounts by the treasury operations team
  4. A standby letter of credit issued in favor of a key supplier

Explanation

An ACH debit filter or block instructs the bank to reject debit entries that do not match authorized originators or criteria. It addresses unauthorized pulls directly, whereas reconciliation detects issues after posting and check positive pay controls outgoing checks.

Question 41Cash Management and Payment Systems

Which term describes the time between a company mailing a check and the payee receiving it?

  1. Processing float
  2. Mail float Correct answer.
  3. Availability float
  4. Clearing float

Explanation

Mail float is the interval between placing a payment into the postal system and its delivery to the payee. It is one of several float components that together determine how long funds remain outside the payer's or payee's usable balance.

Question 42Cash Management and Payment Systems

A company must send a large, time-critical payment that requires immediate, irrevocable settlement in central bank money. Which rail best meets the requirement?

  1. A weekend-dated ACH debit
  2. A next-day ACH credit
  3. A corporate check with overnight delivery
  4. Fedwire Funds Service Correct answer.

Explanation

Fedwire is the Federal Reserve's real-time gross settlement system, so each transfer settles individually in central bank funds and is final when processed. ACH entries move through scheduled batch windows, which cannot guarantee the same immediacy or finality for a closing-day payment.

Question 43Cash Management and Payment Systems

What is the primary function of a wholesale lockbox?

  1. To hold received customer funds in escrow until goods ship
  2. To convert all paper checks into outgoing wire transfers
  3. To provide overdraft protection on the operating account
  4. To have a bank process incoming payments and remittance data Correct answer.

Explanation

In a lockbox arrangement the bank receives payments at a dedicated post office box, deposits them promptly, and transmits remittance detail for receivables posting. This shortens mail and processing float and accelerates cash application.

Question 44Cash Management and Payment Systems

In a zero balance account structure, what happens at the end of each day?

  1. It is funded only for presented items, ending at zero Correct answer.
  2. The balance is transferred in full to a compensating account
  3. Excess funds above the target are invested overnight
  4. A fixed minimum balance is restored from the master account

Explanation

A ZBA is funded from a master account only for the dollar amount of items presented that day, so the closing balance returns to zero. This eliminates idle balances in disbursement accounts while preserving payment detail in each account.

Question 45Cash Management and Payment Systems

Which tool requires a company to send the bank a file of issued checks so presented items can be matched before payment?

  1. Controlled disbursement
  2. Reverse positive pay
  3. Account reconciliation plan (ARP)
  4. Positive pay Correct answer.

Explanation

Positive pay compares presented checks against the company's issued-check file and flags exceptions such as amount or serial-number mismatches. Reverse positive pay reverses the flow, requiring the company to review presented items by a deadline.

Question 46Cash Management and Payment Systems

Under Check 21, a substitute check is best described as:

  1. A paper copy that is legally equivalent to the original Correct answer.
  2. A bank draft issued by the depositary bank in place of a return
  3. A certified check guaranteed by the issuing bank
  4. An electronic image that has no legal standing

Explanation

A substitute check is a paper reproduction of an original check that meets Check 21 standards and is legally equivalent to the original for all purposes. It lets banks truncate checks and exchange images electronically while still providing a negotiable paper document.

Question 47Cash Management and Payment Systems

Which characteristic distinguishes an ACH payment from a wire transfer?

  1. ACH entries are batched and settled on a net basis Correct answer.
  2. ACH entries cannot be returned after settlement
  3. ACH payments are initiated only by the receiver
  4. ACH payments settle individually in real time

Explanation

ACH is a store-and-forward system in which entries are exchanged in scheduled batches and settled net among participants. Wire systems such as Fedwire settle each payment individually and in real time, which is the key structural difference.

Question 48Cash Management and Payment Systems

Which description matches a real-time gross settlement (RTGS) system?

  1. Payments are held until a threshold amount is reached
  2. Payments are settled only after the receiver returns the funds
  3. Payments are netted and settled once at the end of the day
  4. Each payment is settled individually and immediately in central bank money Correct answer.

Explanation

RTGS systems settle each payment separately as it is processed, with immediate finality in central bank funds. This removes the settlement risk inherent in deferred net settlement but requires participants to manage intraday liquidity.

Question 49Cash Management and Payment Systems

A company mails 500 checks averaging $2,000 each. Mail float averages 3 days, processing float 2 days, and clearing float 1 day. What is the total dollar amount of float?

  1. $12,000,000
  2. $1,000,000
  3. $3,000,000
  4. $6,000,000 Correct answer.

Explanation

Total float days equal 3 + 2 + 1 = 6, and the daily dollar flow equals 500 × $2,000 = $1,000,000 per day of float. Multiplying 6 days by $1,000,000 yields $6,000,000 of float.

Question 50Cash Management and Payment Systems

A treasury team must settle a $40 million acquisition payment today with finality and no ability to reverse. Which instrument fits?

  1. An international bank draft mailed overnight
  2. A corporate check drawn on the target account
  3. A same-day ACH credit
  4. A Fedwire funds transfer Correct answer.

Explanation

Fedwire provides same-day, irrevocable settlement in central bank funds once processed, which is the standard for time-critical, high-value transfers. Same-day ACH settles later under batch rules and can be returned, so it does not offer equivalent finality for a closing.