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CTP (AFP) practice questions

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Question 1Treasury Management Fundamentals

What is the primary objective of treasury management?

  1. Maximize gross sales revenue
  2. Minimize income tax expense
  3. Optimize liquidity and manage risk Correct answer.
  4. Prepare external financial statements

Explanation

Treasury management focuses on ensuring cash availability, optimizing liquidity, and controlling financial risks such as foreign exchange and interest rate exposure. Sales, tax, and financial reporting are responsibilities of other functions.

Question 2Treasury Management Fundamentals

The ACH network primarily supports which type of payment activity?

  1. Batch processing of recurring payments Correct answer.
  2. Real-time settlement of large wires
  3. Physical check image exchange
  4. International trade document collection

Explanation

ACH is a batch-oriented electronic payment network used for recurring, lower-value payments such as payroll, vendor payments, and direct debits. Large real-time transfers use wire systems, while check image exchange is a separate clearing process.

Question 3Treasury Management Fundamentals

A lockbox service is designed to do which of the following?

  1. Provide overdraft protection
  2. Delay customer payments to improve float
  3. Accelerate deposit of remittances Correct answer.
  4. Centralize payroll disbursements

Explanation

A lockbox is a bank-operated collection service that receives customer remittances and deposits them quickly, reducing mail and processing float. It does not delay payments or fund payroll.

Question 4Treasury Management Fundamentals

Working capital is best defined as which of the following?

  1. Cash plus marketable securities
  2. Revenue less operating expenses
  3. Current assets less current liabilities Correct answer.
  4. Long-term assets less long-term liabilities

Explanation

Working capital measures the short-term liquidity cushion available to operate the business and is calculated as current assets minus current liabilities. Cash and securities are only part of current assets, and revenue less operating expenses measures operating income.

Question 5Treasury Management Fundamentals

Segregation of duties in treasury is intended mainly to reduce which risk?

  1. Customer credit risk
  2. Fraud and unauthorized payments Correct answer.
  3. Interest rate exposure
  4. Foreign exchange translation risk

Explanation

Separating initiation, approval, and reconciliation duties reduces the opportunity for fraud or unauthorized transactions. Interest rate and FX risks are managed through hedging and maturity decisions, while credit risk is managed through credit policy.

Question 6Treasury Management Fundamentals

A wire transfer is best characterized as which of the following?

  1. Deferred next-day settlement only
  2. Reversible batch settlement
  3. Same-day irrevocable transfer Correct answer.
  4. Paper-based clearing

Explanation

Wire transfers are electronic funds transfers that generally settle same day and become irrevocable once processed. They are not batch, paper-based, or limited to deferred next-day settlement.

Question 7Treasury Management Fundamentals

A sweep account is used to do which of the following?

  1. Issue standby letters of credit
  2. Clear foreign checks
  3. Process employee payroll
  4. Move excess cash to investments Correct answer.

Explanation

Sweep accounts automatically transfer balances above or below a target level into an investment, loan repayment, or concentration account. They are not used to process payroll or clear foreign checks.

Question 8Treasury Management Fundamentals

Which metric measures the time from paying suppliers to collecting from customers?

  1. Gross profit margin
  2. Current ratio
  3. Debt-to-equity ratio
  4. Cash conversion cycle Correct answer.

Explanation

The cash conversion cycle combines days inventory outstanding and days sales outstanding, then subtracts days payables outstanding to show the net time cash is tied up. The other measures address liquidity, leverage, or profitability.

Question 9Treasury Management Fundamentals

Which cash forecasting method is most appropriate for a detailed weekly forecast?

  1. Regression analysis of annual sales
  2. Pro forma balance sheet method
  3. Percent-of-sales method
  4. Receipts and disbursements method Correct answer.

Explanation

The receipts and disbursements method builds a short-term forecast from expected cash inflows and outflows by date, making it well suited to weekly horizons. The other methods are generally used for longer-range or macro-level forecasting.

Question 10Treasury Management Fundamentals

Which tool most directly reduces mail float on customer collections?

  1. Lockbox Correct answer.
  2. Standby letter of credit
  3. Sweep account
  4. Zero-balance account

Explanation

A lockbox shortens mail and processing float because the bank receives and deposits remittances directly. A zero-balance account and sweep affect disbursement funding or balances, not mail transit time.

Question 11Treasury Management Fundamentals

If a company increases its days payables outstanding, what is the effect on the cash conversion cycle, all else equal?

  1. Has no effect on CCC
  2. Doubles CCC
  3. Decreases CCC Correct answer.
  4. Increases CCC

Explanation

The cash conversion cycle subtracts days payables outstanding, so stretching payables shortens the cycle by keeping cash longer. The change is proportional to the DPO change, not a doubling.

Question 12Treasury Management Fundamentals

What is the purpose of a zero-balance account?

  1. Consolidate customer remittances
  2. Earn interest on idle balances
  3. Fund disbursements as checks clear Correct answer.
  4. Provide overdraft protection

Explanation

A ZBA is funded only when disbursement items are presented, keeping the account balance at or near zero. It does not earn interest on idle balances or consolidate customer remittances.

Question 13Treasury Management Fundamentals

An ACH return reason code R01 indicates which condition?

  1. Account closed
  2. Invalid account number
  3. Insufficient funds Correct answer.
  4. Stop payment placed

Explanation

R01 is the ACH return code for insufficient funds. Account closed, stop payment, and invalid account number are represented by other return reason codes.

Question 14Treasury Management Fundamentals

Positive pay matches presented checks against which information?

  1. Bank signature card only
  2. Vendor master file and payment terms
  3. Employee payroll register
  4. Issued check number, amount, and date Correct answer.

Explanation

Positive pay compares check number, amount, and sometimes date against a file of checks the company has issued. Items that do not match are flagged for review before payment.

Question 15Treasury Management Fundamentals

Which investment is most appropriate for a 30-day operating reserve?

  1. Public equity portfolio
  2. Real estate partnership
  3. 10-year corporate bond
  4. 30-day Treasury bill Correct answer.

Explanation

Operating reserves require high liquidity and low price risk, so a short-dated Treasury bill aligns with the 30-day horizon. Longer bonds, equities, and real estate expose the reserve to duration, market, or illiquidity risk.

Question 16Treasury Management Fundamentals

Bank concentration risk arises when which situation occurs?

  1. A firm hedges FX exposure
  2. Most cash is held at one bank Correct answer.
  3. A firm spreads deposits across banks
  4. A firm uses lockboxes

Explanation

Concentration risk increases when a company relies heavily on a single bank, because a bank failure or disruption could impair access to cash. Diversifying deposits across institutions and using collateralized arrangements reduces this risk.

Question 17Treasury Management Fundamentals

A standby letter of credit is typically used as which of the following?

  1. Investing excess cash in securities
  2. Processing employee payroll payments
  3. Credit support for obligations Correct answer.
  4. Clearing paper checks through the bank

Explanation

A standby letter of credit provides a bank guarantee that supports contractual or credit obligations if the applicant fails to perform. It is not a payment-processing or investment instrument.

Question 18Treasury Management Fundamentals

Disbursement float is best described as which of the following?

  1. Time between invoice receipt and payment approval
  2. Time between wire initiation and receipt
  3. Time between check issuance and bank debit Correct answer.
  4. Time between sale and customer remittance

Explanation

Disbursement float is the interval between when a company issues a check and when the funds are debited from its account. Collection float, by contrast, measures the time from sale to remittance receipt.

Question 19Treasury Management Fundamentals

What is a primary treasury benefit of electronic data interchange?

  1. Guarantees customer payment
  2. Eliminates foreign exchange risk
  3. Reduces manual processing and errors Correct answer.
  4. Eliminates need for bank relationships

Explanation

EDI standardizes electronic exchange of payment and remittance data, reducing manual keying and associated errors. It does not by itself guarantee payment or remove FX exposure.

Question 20Treasury Management Fundamentals

A treasury management system primarily supports which activity?

  1. Tax return preparation
  2. Human resource administration
  3. Cash positioning and payments Correct answer.
  4. Manufacturing scheduling

Explanation

A TMS consolidates bank balances, supports cash positioning, and automates payment workflows and reporting. It is not designed for manufacturing scheduling, tax preparation, or HR administration.

Question 21Treasury Management Fundamentals

A company reports days inventory outstanding of 45, days sales outstanding of 60, and days payables outstanding of 30. What is its cash conversion cycle?

  1. 75 days Correct answer.
  2. 15 days
  3. 135 days
  4. 45 days

Explanation

The cash conversion cycle equals DIO plus DSO minus DPO, or 45 + 60 - 30 = 75 days. Adding DPO instead of subtracting it overstates the cycle.

Question 22Treasury Management Fundamentals

A treasurer expects short-term interest rates to decline over the next six months. To protect investment income, the treasurer should most likely do which of the following?

  1. Move the portfolio into overnight deposits
  2. Shorten investment maturities to reinvest sooner
  3. Increase borrowing at floating rates
  4. Extend maturities to lock in current yields Correct answer.

Explanation

If rates are expected to fall, locking in current yields by extending maturities protects investment income. Shortening maturities or moving to overnight deposits would cause reinvestment at lower rates.

Question 23Treasury Management Fundamentals

What is a key benefit of centralizing treasury operations?

  1. More bank accounts and relationships
  2. Greater local autonomy for subsidiaries
  3. Reduced need for internal controls
  4. Improved liquidity visibility and bank terms Correct answer.

Explanation

Centralization gives treasury a consolidated view of cash and greater negotiating leverage with banks, improving liquidity management. It typically reduces local autonomy and the number of bank accounts rather than increasing them.

Question 24Treasury Management Fundamentals

A compensating balance requirement affects a borrower's effective cost of funds in which way?

  1. Eliminates the need for any collateral
  2. Raises effective cost of the loan Correct answer.
  3. Has no effect on the loan pricing
  4. Lowers the effective borrowing cost

Explanation

A compensating balance requires the borrower to keep idle deposits at the bank, reducing the usable loan proceeds and therefore raising the effective cost. It does not lower pricing or remove collateral requirements.

Question 25Treasury Management Fundamentals

Which approach best mitigates counterparty risk on a large deposit?

  1. Invest the deposit in equities
  2. Place all funds with one too-big-to-fail bank
  3. Concentrate deposits at the highest-yielding bank
  4. Diversify deposits and use collateral Correct answer.

Explanation

Counterparty risk on deposits is reduced by spreading funds across multiple institutions and using collateralized or secured arrangements where appropriate. Concentrating funds at one bank increases exposure, while equities introduce market risk.

Question 26Treasury Management Fundamentals

Which bank balance reflects funds that can be used immediately for disbursement after holds and uncollected items are removed?

  1. Available balance Correct answer.
  2. Ledger balance
  3. Book balance
  4. Float balance

Explanation

The available balance deducts holds, uncollected funds, and prior-day adjustments from the ledger balance. It represents what the company can actually disburse at that moment.

Question 27Treasury Management Fundamentals

SWIFT is best described as which of the following?

  1. A retail card network for consumer payments
  2. A check image clearinghouse for U.S. banks
  3. A secure messaging network for financial instructions Correct answer.
  4. A real-time gross settlement system operated by central banks

Explanation

SWIFT provides standardized messaging for financial instructions but does not itself move or settle funds. Settlement occurs through correspondent accounts or payment systems such as Fedwire.

Question 28Treasury Management Fundamentals

A company reports current assets of $500,000 and current liabilities of $250,000. What is its current ratio?

  1. 1.5
  2. 2.5
  3. 0.5
  4. 2.0 Correct answer.

Explanation

The current ratio equals current assets divided by current liabilities, or $500,000 / $250,000 = 2.0. It is a basic measure of short-term liquidity.

Question 29Treasury Management Fundamentals

Which internal control principle requires that the employee who initiates a payment not also perform the bank reconciliation?

  1. Least privilege
  2. Segregation of duties Correct answer.
  3. Dual control
  4. Positive pay

Explanation

Segregation of duties separates payment initiation, approval, and reconciliation so that no single person controls a transaction end to end. This reduces the risk of error and fraud.

Question 30Treasury Management Fundamentals

A concentration account is used primarily to do which of the following?

  1. Pay employee payroll from a single disbursement account
  2. Hold escrow deposits for long-term construction projects
  3. Consolidate collected balances into one central account Correct answer.
  4. Issue standby letters of credit to key suppliers

Explanation

Concentration accounts gather funds from multiple collection accounts so balances can be managed, invested, or used to fund disbursements centrally. They are liquidity-management tools.

Question 31Treasury Management Fundamentals

A prime money market mutual fund differs from a government money market fund primarily in that a prime fund does which of the following?

  1. Guarantees a fixed $1.00 net asset value for investors
  2. Is exempt from all SEC registration and reporting rules
  3. Carries federal FDIC deposit insurance for shareholders
  4. Holds non-Treasury debt and may float its NAV Correct answer.

Explanation

Prime funds may hold commercial paper, certificates of deposit, and repurchase agreements, and institutional prime funds may use a floating net asset value. Government funds hold Treasury and agency securities and seek a stable NAV.

Question 32Treasury Management Fundamentals

Credit terms of 2/10 net 30 mean which of the following?

  1. 2% discount if paid within 10 days, otherwise net 30 Correct answer.
  2. A 10% discount is available if paid within 2 days
  3. A 2% penalty applies after day 10
  4. A 2% interest charge applies for the first 10 days

Explanation

The notation gives the discount percentage, the discount period, and the final due date. A buyer who pays within 10 days deducts 2%; otherwise the full invoice is due in 30 days.

Question 33Treasury Management Fundamentals

On a statement of cash flows, the purchase of manufacturing equipment is classified as which type of activity?

  1. Financing
  2. Investing Correct answer.
  3. Operating
  4. Noncash

Explanation

Purchases and sales of long-lived assets such as equipment are investing activities. Operating activities cover day-to-day revenue and expenses, while financing activities involve debt and equity.

Question 34Treasury Management Fundamentals

In a notional cash pool, participating accounts are managed so that which of the following occurs?

  1. Each subsidiary maintains an independent loan with the bank
  2. All balances are physically swept into a single master account each night
  3. Interest is calculated separately for each account with no offset
  4. Balances are aggregated for interest without moving funds Correct answer.

Explanation

Notional pooling offsets participating balances for interest calculation while funds remain in their respective accounts. Physical pooling, often using zero-balance accounts, actually moves cash into a master account.

Question 35Treasury Management Fundamentals

A company has floating-rate debt and wants fixed-rate exposure. Which action achieves this?

  1. Sell an interest rate floor
  2. Enter a receive-fixed, pay-floating interest rate swap
  3. Enter a pay-fixed, receive-floating interest rate swap Correct answer.
  4. Buy an interest rate cap

Explanation

Paying fixed and receiving floating in a swap converts a floating-rate payment stream into an effectively fixed one. A cap only limits the maximum rate and leaves the company exposed below that level.

Question 36Treasury Management Fundamentals

A U.S. company expects to pay EUR 1,000,000 in 90 days and wants to lock in the dollar cost. Which transaction should it execute?

  1. Buy a 90-day EUR put option
  2. Buy a 90-day USD call option
  3. Buy EUR 1,000,000 forward for 90 days Correct answer.
  4. Sell EUR 1,000,000 forward for 90 days

Explanation

A future EUR payable creates a short EUR exposure that is hedged by buying EUR forward. The forward fixes the exchange rate and therefore the dollar cost today.

Question 37Treasury Management Fundamentals

An earnings credit rate on an analyzed bank account is used to do which of the following?

  1. Set the interest rate charged on the company's term loan
  2. Determine the amount of federal FDIC insurance available to the company
  3. Pay cash interest directly to the company on its average balance
  4. Offset bank service charges with a credit on collected balances Correct answer.

Explanation

The earnings credit rate is a notional rate applied to collected balances to offset account service fees. It does not produce cash interest and is separate from loan pricing.

Question 38Treasury Management Fundamentals

The Fedwire Funds Service is best characterized as which of the following?

  1. A check image exchange network for interbank presentment
  2. A batch net settlement system used mainly for consumer and payroll payments
  3. A real-time gross settlement system for large-value payments Correct answer.
  4. A messaging network that carries instructions but does not settle funds

Explanation

Fedwire is a real-time gross settlement system operated by the Federal Reserve that provides immediate final settlement for large-value payments. ACH is batch net settlement, while SWIFT is messaging only.

Question 39Treasury Management Fundamentals

Same-day ACH differs from traditional next-day ACH primarily in which way?

  1. It uses paper checks instead of electronic entries
  2. It eliminates the need for routing numbers
  3. It settles same day and has a per-payment limit Correct answer.
  4. It is available only for international payments

Explanation

Same-day ACH uses additional processing windows so entries settle on the same business day, subject to a per-transaction dollar limit. It remains a domestic electronic batch service.

Question 40Treasury Management Fundamentals

Factoring is best described as which of the following?

  1. Issuing commercial paper to institutional investors
  2. Selling receivables to a third party at a discount Correct answer.
  3. Borrowing against inventory at a negotiated rate
  4. Pledging equipment as collateral for a term loan

Explanation

Factoring converts receivables into cash by selling them to a third party, typically at a discount that reflects credit risk and the time to collection. It is not a collateralized loan against inventory or equipment.

Question 41Treasury Management Fundamentals

A BAI2 file is used to do which of the following?

  1. Transmit payroll instructions to a bank
  2. Quote foreign exchange rates between dealers
  3. Clear checks between banks
  4. Deliver standardized bank balance reporting Correct answer.

Explanation

BAI2 is a standardized cash-management reporting format that banks use to deliver balance and transaction information to corporate clients. It is a reporting file, not a payment or clearing format.

Question 42Treasury Management Fundamentals

Dual control over outgoing wire transfers requires which of the following?

  1. Two-factor authentication performed by a single approver
  2. Two independent people approve and release the payment Correct answer.
  3. Two separate banks to process the payment
  4. Two reconciliations of the account each day

Explanation

Dual control requires two independent individuals to review and release a payment so that no single person can initiate and complete a wire. Two-factor authentication is an access control for one user, not dual control.

Question 43Treasury Management Fundamentals

A treasury investment policy typically specifies which of the following?

  1. The company's target dividend payout ratio for shareholders
  2. Permitted instruments, maturities, and credit criteria Correct answer.
  3. The company's annual capital expenditure budget and approval process
  4. The CEO's compensation package

Explanation

An investment policy sets the guidelines for short-term cash investments, including eligible instruments, maximum maturities, minimum credit quality, and diversification limits. It does not set dividend, compensation, or capital budgeting policy.

Question 44Treasury Management Fundamentals

Commercial paper is best described as which of the following?

  1. A long-term corporate bond
  2. An unsecured short-term corporate promissory note Correct answer.
  3. A government savings instrument
  4. A mortgage-backed security issued by commercial banks

Explanation

Commercial paper is an unsecured short-term promissory note issued by corporations, typically with maturities of 270 days or less. It is used for working capital and short-term funding needs.

Question 45Treasury Management Fundamentals

In a repurchase agreement, the seller of securities does which of the following?

  1. Issues equity to raise short-term cash
  2. Sells securities and agrees to repurchase them later Correct answer.
  3. Lends cash to the buyer for a fixed term against collateral
  4. Buys securities outright with no obligation to resell them

Explanation

A repurchase agreement is a collateralized borrowing in which the seller sells securities and commits to buy them back at a set price on a future date. The cash provider is effectively the lender.

Question 46Treasury Management Fundamentals

Which metric best measures the reliability of a cash forecast?

  1. Mean absolute percentage error of forecast versus actual Correct answer.
  2. The number of bank accounts maintained
  3. The average daily bank balance held in the operating account
  4. The earnings credit rate on the operating account

Explanation

Forecast reliability is assessed by comparing forecasted cash flows with actual cash flows over time. Mean absolute percentage error quantifies the size of forecast misses, with lower values indicating better accuracy.

Question 47Treasury Management Fundamentals

In a reverse factoring program, which party's credit profile typically determines the financing rate available to the supplier?

  1. The bank's sovereign rating
  2. The supplier's own credit rating
  3. The supplier's inventory turnover
  4. The buyer's credit rating Correct answer.

Explanation

In reverse factoring, the buyer approves invoices and the bank advances funds to the supplier based on the buyer's stronger credit standing. The supplier therefore obtains financing at a rate linked to the buyer, not its own rating.

Question 48Treasury Management Fundamentals

SOFR differs from legacy LIBOR primarily in which way?

  1. SOFR is an unsecured rate published only for 12-month terms
  2. SOFR is a survey-based rate that includes bank credit risk
  3. SOFR is a secured overnight rate based on repo trades Correct answer.
  4. SOFR is set by a panel of banks each morning

Explanation

SOFR is a secured overnight rate derived from actual transactions in the Treasury repurchase market. LIBOR was an unsecured, survey-based rate that embedded bank credit risk and was published in multiple terms.

Question 49Treasury Management Fundamentals

An in-house bank differs from a payment factory primarily by doing which of the following?

  1. Centralizing bank connectivity for subsidiaries
  2. Providing intercompany lending, FX, and cash pooling Correct answer.
  3. Standardizing payment formats across the group
  4. Executing third-party payments on behalf of subsidiaries

Explanation

A payment factory focuses on centralized payment execution, format standardization, and bank connectivity. An in-house bank goes further by acting as an internal bank for affiliates, including intercompany lending, FX, and liquidity management.

Question 50Treasury Management Fundamentals

A short-term bond portfolio has a modified duration of 0.5 years. If market yields rise by 100 basis points, the approximate percentage change in portfolio value is which of the following?

  1. 0.0%
  2. -0.5% Correct answer.
  3. +0.5%
  4. -5.0%

Explanation

The approximate percentage price change equals negative modified duration multiplied by the change in yield. Here, -0.5 × 0.01 = -0.005, or -0.5%.