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TP TMI practice questions

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Question 1Treasury Operations and Cash Management

In a corporate treasury, which document typically authorises the treasury front office to execute a foreign-exchange deal on behalf of the entity?

  1. A signed treasury dealing mandate with defined limits and counterparties Correct answer.
  2. A bank reconciliation statement for the prior month
  3. A supplier invoice denominated in a foreign currency
  4. A cash flow forecast approved by the sales director

Explanation

Treasury dealing authority flows from a formal mandate or delegation of authority that specifies who may deal, with which counterparties, and within what limits. Reconciliation statements, forecasts, and invoices are operational records and do not grant authority to transact.

Question 2Treasury Operations and Cash Management

A company holds a 30-day term deposit that matures on a date when a large supplier payment is due. Which cash management technique best ensures the payment can be funded?

  1. Transferring the deposit to a petty cash float
  2. Placing the deposit on auto-rollover for a further 30 days
  3. Investing the balance in a 12-month certificate of deposit
  4. Aligning the deposit maturity date with the payment due date Correct answer.

Explanation

Maturity matching, sometimes called cash flow laddering, aligns the timing of investment maturities with known outflows so funds are available without breaking a deposit or borrowing short term. Auto-rollover, longer tenors, and petty cash conversion all create either a liquidity gap or inappropriate use of funds.

Question 3Treasury Operations and Cash Management

Which statement correctly describes the purpose of a cash pool?

  1. It guarantees that each subsidiary maintains a positive bank balance
  2. It eliminates all foreign-exchange exposure across the group
  3. It offsets participating account balances to reduce net interest and borrowing Correct answer.
  4. It replaces the need for intercompany loan agreements within a group

Explanation

Cash pooling notional or physical offsets debit and credit balances across participating accounts so the group is charged interest on a smaller net position. It does not remove the need for intercompany documentation, does not hedge currency risk, and does not guarantee positive individual balances.

Question 4Treasury Operations and Cash Management

A treasurer wants a single real-time view of balances held across several relationship banks. Which arrangement is designed for this?

  1. A commercial card programme for travel expenses
  2. A bank-agnostic treasury management system fed by SWIFT or host-to-host statements Correct answer.
  3. A standby letter of credit issued by the lead bank
  4. A multilateral netting cycle run at month end

Explanation

A bank-agnostic TMS that receives balance and transaction data via SWIFT MT940/MT942, CAMT, or host-to-host links consolidates multi-bank positions into one view. Netting cycles, letters of credit, and card programmes serve different purposes and do not provide consolidated balance visibility.

Question 5Treasury Operations and Cash Management

Under a notional pooling arrangement, what happens to the individual balances on the participating accounts?

  1. They are converted to a single base currency and rebooked as intercompany loans
  2. They are frozen until the pool is unwound at year end
  3. They remain on their own accounts while interest is calculated on the combined position Correct answer.
  4. They are physically transferred to a master account each evening

Explanation

Notional pooling leaves balances in place and the bank calculates interest on the aggregate, often applying it to a header account. Physical sweeping, currency conversion with intercompany rebooking, and year-end freezing describe other arrangements entirely.

Question 6Treasury Operations and Cash Management

A group operates a physical zero-balance account structure. What is the primary cash management benefit?

  1. Group surplus and deficit balances are concentrated, reducing external borrowing Correct answer.
  2. Each subsidiary retains surplus cash for local investment
  3. Payment fraud risk is eliminated
  4. Foreign-exchange exposure is automatically hedged

Explanation

Zero balancing sweeps subsidiary surpluses to a header account and funds deficits from it, so the group borrows less externally and earns a better return on concentrated cash. It does not hedge currency exposure or remove fraud risk, and it removes rather than retains local surplus.

Question 7Treasury Operations and Cash Management

A treasury analyst receives a bank statement showing a debit the company cannot identify. What is the correct first escalation step?

  1. Post the item to a suspense account and close the reconciliation
  2. Write the amount off as a bank charge
  3. Request the bank's payment detail or advice to identify the item before posting Correct answer.
  4. Reverse the debit on the assumption it is a bank error

Explanation

Unidentified debits should be investigated by obtaining the underlying payment advice or image from the bank so the item can be coded correctly. Posting to suspense and closing, assuming error, or writing off all bypass investigation and may misstate the accounts.

Question 8Treasury Operations and Cash Management

Which control most directly mitigates the risk of a single treasury dealer concealing losses?

  1. Dealer compensation linked solely to trading volume
  2. Granting the dealer authority to amend counterparty limits
  3. Independent confirmation of deals by a separate operations or back-office team Correct answer.
  4. Daily reporting of positions by the dealer to themselves

Explanation

Segregation of duties requires that deal capture, confirmation, and settlement are performed by someone other than the dealer, so a concealment attempt is detected by independent confirmation. Volume-linked pay, self-reporting, and limit-amendment rights all concentrate control in the dealer.

Question 9Treasury Operations and Cash Management

A company expects a EUR 5 million receipt in three months and wants to lock the exchange rate now without committing to a firm settlement. Which instrument is most suited?

  1. A forward contract with a fixed maturity that cannot be extended
  2. An FX option giving the right but not the obligation to exchange at a set rate Correct answer.
  3. A foreign currency term loan drawn today
  4. A spot FX purchase of EUR today

Explanation

An FX option preserves upside if the rate moves favourably while protecting against adverse moves, and it does not oblige settlement, which suits an uncertain receipt. A spot deal settles now, and a rigid forward creates an obligation that may not match the uncertain timing.

Question 10Treasury Operations and Cash Management

Which item is normally excluded from a short-term cash flow forecast covering the next 13 weeks?

  1. Payroll payments scheduled within the period
  2. VAT payments falling due in the period
  3. Supplier payments already approved for the period
  4. Depreciation of plant and machinery Correct answer.

Explanation

Cash flow forecasts capture movements of cash, and depreciation is a non-cash accounting allocation with no associated payment. Payroll, approved supplier payments, and tax payments all involve actual cash outflows and belong in the forecast.

Question 11Treasury Operations and Cash Management

A group wishes to reduce the number of cross-border payments between subsidiaries. Which technique directly achieves this?

  1. Multilateral netting of intercompany payables and receivables Correct answer.
  2. Extending supplier payment terms by 90 days
  3. Issuing a performance bond to a customer
  4. Increasing the number of local bank accounts

Explanation

Multilateral netting offsets what each entity owes against what it is owed, so only the net difference is settled, cutting payment volume and FX conversion costs. Bonds, extra accounts, and payment-term extension do not net intercompany flows.

Question 12Treasury Operations and Cash Management

What is the principal purpose of a bank account rationalisation exercise in treasury?

  1. To remove the need for bank reconciliation
  2. To convert all accounts to a single currency
  3. To increase the number of banking relationships for diversification
  4. To reduce dormant and duplicate accounts so cash and controls are consolidated Correct answer.

Explanation

Rationalisation closes unnecessary accounts, which improves visibility, reduces bank charges and administrative effort, and tightens control over signatories and access. It does not aim to multiply relationships, force single-currency accounts, or remove reconciliation.

Question 13Treasury Operations and Cash Management

A treasury policy sets a counterparty limit of 10% of the investment portfolio per bank. The portfolio is USD 20 million. What is the maximum permitted exposure to a single bank?

  1. USD 10,000,000
  2. USD 1,000,000
  3. USD 2,000,000 Correct answer.
  4. USD 200,000

Explanation

Ten per cent of USD 20 million is USD 2 million, so exposure to any single bank must not exceed that amount. The other figures reflect a decimal error, a five per cent reading, or the full limit percentage misapplied as an amount.

Question 14Treasury Operations and Cash Management

Which money market instrument is issued at a discount and redeemed at face value, with no periodic coupon?

  1. A fixed-rate corporate bond
  2. A plain vanilla interest rate swap
  3. A treasury bill Correct answer.
  4. A floating rate note

Explanation

Treasury bills are discount instruments: the investor pays less than face value and receives face value at maturity, with the difference representing the return. Floating rate notes and corporate bonds pay periodic coupons, and a swap is a derivative contract rather than a funding instrument.

Question 15Treasury Operations and Cash Management

A company has a USD 3 million overdraft at 6% and USD 3 million on deposit at 3%. What is the annual interest cost of leaving both positions unpooled?

  1. USD 270,000
  2. USD 90,000 Correct answer.
  3. USD 180,000
  4. USD 45,000

Explanation

Interest paid on the overdraft is USD 3 million × 6% = USD 180,000, and interest earned on the deposit is USD 3 million × 3% = USD 90,000, giving a net cost of USD 90,000. Pooling would offset the positions and largely eliminate this cost.

Question 16Treasury Operations and Cash Management

Which document should a treasurer review to confirm the covenants that restrict how much cash can be upstreamed from a subsidiary?

  1. The fixed asset register
  2. The loan agreement and its covenant schedule Correct answer.
  3. The payroll journal
  4. The subsidiary's sales ledger ageing report

Explanation

Loan agreements set financial covenants and restrictions on distributions and cash upstreaming, so the covenant schedule is the authoritative source. Sales ageing, asset registers, and payroll journals contain operational data but no covenant terms.

Question 17Treasury Operations and Cash Management

A payment instruction is initiated by the treasury front office and released by a separate authorised signatory. Which control principle does this illustrate?

  1. Business continuity planning
  2. Dual custody of physical assets
  3. Four-eyes review of financial statements
  4. Maker-checker with segregation of duties Correct answer.

Explanation

Separating initiation from release is the maker-checker principle, which ensures no single person can both create and approve a payment. Dual custody concerns physical assets, four-eyes review of statements is a reporting control, and continuity planning addresses disruption.

Question 18Treasury Operations and Cash Management

Why does a treasurer prefer a shorter settlement cycle when investing surplus cash in money market deposits?

  1. It guarantees a higher coupon on the deposit
  2. It removes the need for a counterparty limit
  3. It increases the credit rating of the issuing bank
  4. It reduces the time funds are exposed to counterparty risk Correct answer.

Explanation

Shorter settlement and tenor reduce the period during which invested cash is at risk with a counterparty, which is a core liquidity and credit consideration. Settlement speed does not change a bank's rating, guarantee a coupon, or remove the need for limits.

Question 19Treasury Operations and Cash Management

A company wants to hedge a highly probable forecast purchase of raw materials in JPY in six months. Which treatment is most consistent with hedge accounting under IFRS 9?

  1. Treat the forward as a speculative trade and mark it to market through equity
  2. Recognise all forward gains and losses immediately in other income with no documentation
  3. Designate the forward as a cash flow hedge and document the hedged item and risk Correct answer.
  4. Wait until the purchase occurs and then designate the hedge retrospectively

Explanation

Cash flow hedge accounting requires formal designation and documentation of the hedged item, the risk being hedged, and the hedge relationship before the effective portion is deferred in other comprehensive income. Immediate recognition without documentation, speculative treatment, or retrospective designation fails those requirements.

Question 20Treasury Operations and Cash Management

A group operates a cross-currency notional pool with a EUR header account and USD and GBP participants. Which risk remains despite the pooling arrangement?

  1. Removal of the need for bank account reconciliation
  2. Residual foreign-exchange exposure on the non-base-currency balances Correct answer.
  3. Elimination of all intercompany credit risk
  4. Complete loss of interest on all participating balances

Explanation

Cross-currency pooling offsets balances for interest purposes but the group still bears currency exposure on non-base-currency positions unless separately hedged. It does not eliminate interest entirely, remove intercompany credit risk, or dispense with reconciliation.

Question 21Treasury Operations and Cash Management

A treasury team wants to reduce settlement risk on large FX deals with a single counterparty. Which practice addresses this most directly?

  1. Extending the settlement period to allow more review time
  2. Using payment-versus-payment settlement or a CLS-style mechanism Correct answer.
  3. Increasing the size of each trade to reduce transaction costs
  4. Settling all trades with one bank to simplify operations

Explanation

Payment-versus-payment settlement ensures both currency legs settle together, so the counterparty cannot pay one leg and fail on the other, which is the core of Herstatt risk. Larger trades, single-bank concentration, and longer settlement periods increase rather than reduce exposure.

Question 22Treasury Operations and Cash Management

A subsidiary's local cash balance exceeds its operating needs, but local exchange controls restrict conversion to the group base currency. What is the most appropriate treasury response?

  1. Record the balance as unrestricted cash in group liquidity reporting
  2. Ignore the balance because it cannot be converted
  3. Assess the restriction, report it as restricted cash, and plan local uses or permitted repatriation routes Correct answer.
  4. Immediately convert the balance through an offshore account without approval

Explanation

Exchange controls create restricted cash, which must be identified, disclosed, and excluded from freely available liquidity while the team explores permitted local uses or repatriation channels. Ignoring it, treating it as unrestricted, or converting without approval misstates liquidity and may breach regulation.

Question 23Treasury Operations and Cash Management

A company's bank offers a target balancing structure with a minimum operating balance of USD 50,000 per account. An account holds USD 80,000 at day end. What is the expected sweep amount to the header account?

  1. USD 50,000
  2. USD 30,000 Correct answer.
  3. USD 0
  4. USD 80,000

Explanation

Target balancing sweeps only the excess above the agreed target, so the sweep is USD 80,000 minus the USD 50,000 target, which equals USD 30,000. Sweeping the full balance or the target amount misapplies the structure, and a nil sweep ignores the excess.

Question 24Treasury Operations and Cash Management

Which action best strengthens the resilience of a treasury operation against a bank portal outage?

  1. Relying on a single bank portal for all payment origination
  2. Maintaining tested alternative payment channels and documented manual fallback procedures Correct answer.
  3. Removing payment limits so transactions can be processed faster
  4. Granting all treasury staff full release authority during an outage

Explanation

Continuity planning requires alternative channels and tested manual fallback so payments can still be made during an outage while controls remain intact. Single-channel reliance, removed limits, and blanket release authority all weaken control and increase risk.

Question 25Treasury Operations and Cash Management

A treasurer is comparing a physical sweep with a notional pool for a group with entities in three countries. Which factor most strongly favours notional pooling?

  1. The intention to close all local operating accounts
  2. The requirement to eliminate all bank credit exposure
  3. The need to convert all balances into a single currency physically
  4. The desire to avoid intercompany loan documentation and balance sheet gross-up Correct answer.

Explanation

Notional pooling leaves balances on the entities' own accounts, avoiding the intercompany loans and gross-up that physical sweeping can create on the balance sheet. It does not convert balances physically, eliminate bank credit exposure, or remove the need for local operating accounts.

Question 26Treasury Operations and Cash Management

In a treasury payment factory, what is the main purpose of a payment-on-behalf-of (POBO) structure?

  1. Local finance teams approve and release their own payments independently
  2. A central entity executes payments for group companies using its own bank accounts Correct answer.
  3. Each subsidiary retains its own bank accounts but shares a single signatory list
  4. The group's banks net intercompany payables before settlement

Explanation

POBO concentrates payment execution in a single in-house or central entity that pays suppliers on behalf of subsidiaries, using the central entity's accounts and bank relationships. This reduces the number of accounts, harmonises payment standards, and simplifies bank connectivity. It is distinct from netting, which offsets intercompany obligations rather than executing third-party payments.

Question 27Treasury Operations and Cash Management

A treasurer must confirm the available balance on a group's main operating account before releasing a large supplier payment. Which bank report provides settled, value-dated balances by account?

  1. A same-day intraday account report Correct answer.
  2. The prior day's MT940 end-of-day statement
  3. The monthly billing statement
  4. The annual bank confirmation letter

Explanation

An intraday report shows current-day settled balances and transactions, which is what a treasurer needs before releasing a same-day payment. An MT940 end-of-day statement reflects the previous close and is stale for this purpose. Billing statements and annual confirmations serve reconciliation and audit, not real-time liquidity decisions.

Question 28Treasury Operations and Cash Management

A treasury analyst is reconciling the group's bank accounts and finds a credit entry of USD 250,000 with a reference matching no known customer or intercompany code. What is the appropriate first step?

  1. Contact the bank to obtain remitter details and trace the origin Correct answer.
  2. Reverse the entry and wait for the counterparty to re-send the payment
  3. Transfer the funds to the group's concentration account immediately
  4. Post the amount to sundry income and close the reconciliation

Explanation

Unidentified receipts must be investigated before they are recognised, because they may be a misdirected customer payment, a duplicate, or a fraud attempt. The bank holds remitter and payment-rail detail that can identify the origin. Booking to income or moving the cash creates a liability risk and obscures the audit trail.

Question 29Treasury Operations and Cash Management

Which instrument represents a short-term, unsecured promissory note issued by a large creditworthy corporation and typically traded at a discount?

  1. A commercial paper programme note Correct answer.
  2. A treasury bill
  3. A repurchase agreement
  4. A certificate of deposit issued by a bank

Explanation

Commercial paper is an unsecured short-term promissory obligation of a corporation, usually issued at a discount and redeemed at face value. Certificates of deposit are bank liabilities, repos are collateralised lending, and treasury bills are sovereign instruments. Only commercial paper is the corporate unsecured instrument described.

Question 30Treasury Operations and Cash Management

Under a group's treasury policy, surplus cash may only be invested with counterparties rated at least A-1/P-1 short term. A bank is downgraded to A-2/P-2. What does the policy normally require?

  1. Double the limit because the yield will be higher
  2. Ignore the downgrade until the annual policy review
  3. Continue existing deposits but stop placing new ones with that bank
  4. Reduce exposure to within an approved exception or migrate the funds to eligible counterparties Correct answer.

Explanation

A minimum rating threshold is a hard policy limit, so a downgrade below the floor requires action: either an approved, time-bound exception or migration of balances to eligible counterparties. Simply freezing new placements leaves existing exposure above policy. Rating floors exist to control credit risk, not to be traded off against yield.

Question 31Treasury Operations and Cash Management

Which statement best describes the cash flow effect of a notional pooling arrangement compared with separate standalone accounts?

  1. It eliminates all counterparty credit exposure to the pooling bank
  2. It physically transfers balances into a header account each day
  3. It removes the need for intercompany loan documentation
  4. It offsets credit and debit balances for interest calculation without moving principal Correct answer.

Explanation

Notional pooling aggregates balances for interest computation while the underlying funds stay in each participant's account. No principal moves, so there is no physical sweep. The bank still carries credit risk, and intercompany positions may still require documentation depending on jurisdiction and tax treatment.

Question 32Treasury Operations and Cash Management

A treasurer wants to confirm the group's total consolidated cash position across all banks at the previous day's close. Which source is most appropriate?

  1. The group's treasury management system cash position report fed by bank statements Correct answer.
  2. The fixed asset register
  3. The accounts payable ageing report
  4. The statutory consolidation trial balance

Explanation

A TMS cash position report populated from bank statements gives a consolidated, bank-confirmed view of balances by entity and currency at close. The other reports either do not contain cash balances or are prepared on a different basis and period. Treasury relies on statement-fed positions rather than accounting ledgers for daily liquidity.

Question 33Treasury Operations and Cash Management

Which practice best protects a treasury department against payment fraud initiated through a compromised email account?

  1. Sending beneficiary confirmations by reply to the requesting email
  2. Relying solely on the bank's fraud monitoring
  3. Requiring call-back verification to a known number for new beneficiary instructions Correct answer.
  4. Allowing any treasury team member to add beneficiaries

Explanation

Out-of-band verification to a previously known telephone number defeats email compromise, because the attacker controls the email channel but not the verified phone contact. Beneficiary maintenance should be restricted and independently approved. Replying to the requesting email simply confirms the fraudster's control of that mailbox.

Question 34Treasury Operations and Cash Management

A group holds EUR 10 million of surplus cash for 90 days and can invest at 3.60% or repay a revolving credit facility drawn at 5.10%. Ignoring tax and transaction costs, what is the approximate interest advantage of repaying the facility?

  1. EUR 127,500
  2. EUR 90,000
  3. EUR 22,500
  4. EUR 37,500 Correct answer.

Explanation

The saving is the interest-rate differential of 1.50% applied to EUR 10 million for 90/360 of a year: 10,000,000 x 1.50% x 0.25 = EUR 37,500. Repaying debt avoids interest at 5.10% while forgoing deposit income at 3.60%. The comparison should also consider liquidity buffer needs and facility availability before acting.

Question 35Treasury Operations and Cash Management

A treasurer is designing a 13-week direct cash flow forecast. Which input is most appropriate for the receipts line?

  1. Budgeted annual sales converted to a monthly average
  2. The prior year's audited operating cash flow
  3. Customer invoice due dates adjusted for observed payment behaviour Correct answer.
  4. Analyst consensus revenue estimates

Explanation

A short-horizon direct forecast is built from actual open receivables, their contractual due dates, and historical payment behaviour by customer segment. Annual budgets, prior-year actuals, and analyst estimates are too aggregated or backward-looking for weekly liquidity management. The forecast must tie to real invoices to be actionable.

Question 36Treasury Operations and Cash Management

A company's bank charges a commitment fee of 0.25% per annum on the undrawn portion of a USD 40 million revolving facility. The average undrawn balance for the year is USD 12 million. What is the annual commitment fee?

  1. USD 3,000
  2. USD 30,000 Correct answer.
  3. USD 70,000
  4. USD 100,000

Explanation

The fee applies to the undrawn portion only: USD 12 million x 0.25% = USD 30,000. Charging the fee on the full facility would overstate the cost, and applying it to the drawn amount confuses the commitment fee with interest. Commitment fees compensate the bank for holding capital available.

Question 37Treasury Operations and Cash Management

A subsidiary in a country with strict FX controls generates local currency cash it cannot convert. Which treasury response is most appropriate?

  1. Convert the cash through an unofficial parallel market
  2. Use the trapped cash for local operating payments, local capex, or natural hedging of local costs Correct answer.
  3. Report the balance as freely available group liquidity
  4. Leave the cash idle in the local account until controls are lifted

Explanation

Trapped cash should be deployed locally to reduce the need for hard-currency funding, for example by paying local suppliers, funding local capex, or matching local currency liabilities. This extracts economic value without breaching controls. Parallel markets are illegal or non-compliant, and treating trapped cash as freely available misstates group liquidity.

Question 38Treasury Operations and Cash Management

A treasurer wants to reduce the risk that a single bank failure disrupts payment execution for the whole group. Which design is most effective?

  1. Concentrating all payment traffic with the group's cheapest bank
  2. Relying on the bank's own business continuity plan
  3. Maintaining at least one tested alternative payment channel and a secondary banking relationship Correct answer.
  4. Increasing the group's deposit balance with that bank to secure preferential service

Explanation

Operational resilience requires a tested fallback: an alternative channel such as a second bank portal, host-to-host connection, or SWIFT connectivity, plus a live secondary relationship. A bank's continuity plan covers the bank, not the client's ability to pay. Concentration and larger deposits increase rather than reduce dependency.

Question 39Treasury Operations and Cash Management

A group's intercompany netting cycle settles monthly. A subsidiary owes EUR 4 million and is owed EUR 3 million by other group entities in the same cycle. What is the net settlement amount?

  1. EUR 3 million receivable
  2. EUR 7 million payable
  3. EUR 4 million payable
  4. EUR 1 million payable Correct answer.

Explanation

Netting offsets payables against receivables within the cycle, so the entity settles only the difference: EUR 4 million payable less EUR 3 million receivable equals EUR 1 million payable. Gross settlement of both legs would double the funding and FX conversion needs. Netting reduces transaction volume and settlement risk.

Question 40Treasury Operations and Cash Management

Which bank account feature most directly supports straight-through reconciliation of high-volume customer receipts?

  1. An overdraft facility on the collection account
  2. A single pooled account with no reference field
  3. A virtual account number assigned to each customer Correct answer.
  4. A manual lockbox with paper remittance advices

Explanation

Virtual accounts give each payer a unique identifier, so incoming payments are automatically attributed to the correct customer without manual matching. This enables straight-through reconciliation and reduces unapplied cash. A single account without references, paper advices, and overdrafts do not provide automatic attribution.

Question 41Treasury Operations and Cash Management

A treasury policy requires dual authorisation for payments above USD 100,000. A payment of USD 250,000 is released by one authorised signatory because the second is on leave. Which control failure has occurred?

  1. Segregation of duties between initiation and release
  2. Bank account reconciliation timing
  3. Counterparty credit limit breach
  4. The four-eyes authorisation threshold Correct answer.

Explanation

The policy sets a four-eyes requirement above USD 100,000, so a single release breaches that control regardless of staffing. The correct response is to use an alternate authorised signatory or defer the payment, not to waive the rule. Segregation of duties concerns who prepares versus who approves, which is a related but different control.

Question 42Treasury Operations and Cash Management

A treasurer is assessing the credit risk of placing a 30-day deposit with a bank. Which combination of factors is most relevant?

  1. The bank's short-term rating, CDS spread, and the deposit's tenor relative to the group's limit grid Correct answer.
  2. The interest rate offered relative to peers
  3. The bank's branch network in the group's operating countries
  4. The bank's share price and recent media coverage

Explanation

Counterparty credit assessment combines external ratings, market-implied risk such as CDS spreads, and tenor-specific limits set in policy. Share price and media sentiment are noisy, and a higher rate may simply price perceived risk. Branch network is a service consideration, not a credit measure.

Question 43Treasury Operations and Cash Management

Which practice best supports accurate FX exposure identification in a multi-entity group?

  1. Centralising all currency exposures in a treasury system that aggregates entity-level exposures by currency and maturity Correct answer.
  2. Hedging only exposures above a fixed group-wide threshold with no entity reporting
  3. Relying on the statutory accounts translation exposure only
  4. Hedging each subsidiary's exposures locally without group visibility

Explanation

Accurate exposure management requires collecting entity-level transactional and forecast exposures into a central system so they can be aggregated, netted, and hedged efficiently. Local hedging without group visibility can create offsetting positions and duplicate costs. Translation exposure and threshold-only reporting leave gaps.

Question 44Treasury Operations and Cash Management

A group wants to minimise idle balances across 40 operating accounts in the same country and currency. Which structure is most appropriate?

  1. A target balancing arrangement with a concentration account Correct answer.
  2. A time deposit ladder in each operating account
  3. Separate standalone accounts with monthly manual transfers
  4. A cross-currency notional pool spanning five currencies

Explanation

Target balancing sweeps excess balances above an operating buffer into a concentration account, keeping each account funded while centralising surplus. Because all accounts are in one country and currency, a domestic target balance structure is simplest and most effective. Cross-currency pooling adds complexity that is unnecessary here.

Question 45Treasury Operations and Cash Management

A treasurer reviews a bank's compensation for balances held under a notional pool. Which statement is correct?

  1. The bank applies a single interest rate to the net pooled position Correct answer.
  2. The bank pays interest on each participant account separately at the credit rate
  3. The bank waives all fees in exchange for the pool
  4. The bank charges overdraft interest on gross debit balances and pays credit interest on gross credit balances

Explanation

In notional pooling the bank calculates interest on the aggregated net position, applying the relevant credit or debit rate to that net figure. This is the source of the interest benefit compared with standalone accounts. Gross-basis charging would eliminate the pooling advantage, and fees are a separate commercial matter.

Question 46Treasury Operations and Cash Management

A company must choose between a physical sweep and a notional pool for entities in three countries with different currencies. Which factor most strongly favours the physical sweep?

  1. The desire to avoid any intercompany loan documentation
  2. The objective of minimising bank credit exposure
  3. The wish to keep each entity's funds in its own account
  4. The need to physically centralise funds for investment or debt repayment in one currency Correct answer.

Explanation

A physical sweep actually moves cash into a concentration account, creating a real pool of funds that can be invested or used to repay debt. Notional pooling only offsets interest and leaves principal dispersed. Cross-currency physical sweeps, however, require FX conversion and intercompany documentation.

Question 47Treasury Operations and Cash Management

A treasury team is evaluating a new bank connectivity project. Which benefit most directly justifies migrating from manual portal payments to a host-to-host or SWIFT-based channel?

  1. Straight-through processing with automated validation, status reporting, and fewer manual keying errors Correct answer.
  2. Removal of the requirement to reconcile bank statements
  3. Reduced per-payment bank fees only
  4. Elimination of the need for payment authorisation controls

Explanation

Automated connectivity delivers straight-through processing: payment files flow from the ERP or TMS to the bank with validation, and status messages flow back, reducing manual keying and errors. Fee reduction may follow but is secondary. Authorisation controls and reconciliation remain essential regardless of channel.

Question 48Treasury Operations and Cash Management

A group's cash forecast shows a persistent 13-week liquidity shortfall in one currency. Which response best addresses the structural nature of the gap?

  1. Rely on the group's overdraft each week without further action
  2. Increase the minimum operating balance in the concentration account
  3. Arrange a committed multi-currency facility sized to the forecast trough and align its tenor to the shortfall Correct answer.
  4. Delay supplier payments to close the gap

Explanation

A persistent forecast trough is a structural funding need, so the appropriate response is committed funding sized to the lowest point and with a tenor matching the expected duration. Uncommitted overdrafts can be withdrawn, delaying suppliers damages relationships and may breach terms, and raising operating buffers consumes liquidity.

Question 49Treasury Operations and Cash Management

A treasurer is assessing whether to hedge a forecast USD 20 million export receipt in six months. The exposure is highly probable and qualifies for hedge accounting. Which consideration is most relevant to the decision to hedge?

  1. Whether the customer might pay early
  2. The accounting treatment alone, since hedge accounting removes all economic risk
  3. The group's risk appetite for cash flow volatility and the cost of hedging versus the protection gained Correct answer.
  4. Whether the forward rate is better than today's spot rate

Explanation

Hedging decisions should be driven by risk appetite and the trade-off between hedging cost and volatility reduction, not by a forecast of rate direction. Hedge accounting affects presentation, not economics, and early payment changes timing but not the underlying exposure. Speculating on spot versus forward is not a treasury objective.

Question 50Treasury Operations and Cash Management

A group operates a payment factory where a central entity pays suppliers for subsidiaries. Which risk arises if the central entity's bank account is frozen by a regulator?

  1. The subsidiaries' local accounts are automatically frozen as well
  2. The risk is eliminated because payments are centralised
  3. All group payments routed through that account are disrupted, creating group-wide liquidity and operational risk Correct answer.
  4. Only the central entity's own supplier payments are affected

Explanation

Centralisation creates concentration risk: if the payment account is frozen, every payment routed through it is affected, so the group needs contingency channels and alternative accounts. Local subsidiary accounts are not automatically frozen, but the disruption still propagates through the shared payment route. Concentration increases, rather than eliminates, this dependency.