Unit 3: Money Market Instruments - Practice Quiz

1 Who issues Treasury Bills in India?

2 How are Treasury Bills generally issued?

3 Which of the following is a common maturity period for a Treasury Bill in India?

4 What is a Commercial Paper?

5 Commercial Paper is primarily issued by companies to meet which need?

6 Which type of company is generally better placed to issue Commercial Paper?

7 A Certificate of Deposit is issued mainly by which institutions?

8 What does a Certificate of Deposit represent?

9 Which feature is commonly associated with a Certificate of Deposit?

10 What is the primary objective of treasury management?

11 What does liquidity management help a company do?

12 A cash budget is mainly used in treasury management to forecast what?

13 Which activity is normally part of corporate treasury operations?

14 What may a corporate treasury do with temporary surplus cash?

15 Which financial risk may arise when a company deals in foreign currencies?

16 What does ECB stand for in corporate finance?

17 External Commercial Borrowings are generally raised from whom?

18 Which risk is commonly associated with a foreign-currency ECB?

19 What does MSME stand for?

20 Which facility commonly helps an MSME finance its day-to-day operations?

21 A company purchases a 91-day Treasury Bill with a face value of for . Using a 365-day year, what is its approximate annualized discount yield?

22 A corporate treasury expects to need cash after 90 days and wants minimal default risk. Which investment is most suitable?

23 Market interest rates rise immediately after a company purchases a Treasury Bill. If the company sells it before maturity, what is the most likely result?

24 A highly rated company needs unsecured financing for seasonal inventory lasting four months. Which instrument is most appropriate?

25 A company repeatedly issues new Commercial Paper to repay maturing Commercial Paper. Which risk is it primarily assuming?

26 A Commercial Paper instrument with a face value of is issued for . What amount represents the investor's return if it is held to maturity?

27 A company wants to invest surplus cash in a bank instrument that may be sold in the secondary market before maturity. Which instrument best meets this requirement?

28 If market interest rates increase after a fixed-rate Certificate of Deposit is issued, what will generally happen to its secondary-market price?

29 A bank issues Certificates of Deposit primarily to achieve which objective?

30 A group has excess cash in one subsidiary while another subsidiary is using an expensive overdraft. Which treasury action would most directly reduce total financing cost?

31 A company must pay a supplier in euros after three months and fears that the euro will appreciate. Which action best manages this exposure?

32 A treasurer is choosing between a 30-day deposit and a one-year deposit for cash needed in 45 days. Which consideration should receive the greatest weight?

33 In a corporate treasury, the dealer who executes a foreign-exchange trade should not also confirm and settle it. Which control principle does this illustrate?

34 A treasury forecast shows a major cash deficit next week despite a positive month-end balance. What should the treasury team do first?

35 A trade confirmation received from a bank differs from the treasury management system regarding the exchange rate. What is the appropriate response?

36 An Indian company earns only rupee revenue but borrows in US dollars through an External Commercial Borrowing. If the rupee depreciates, what is the likely effect?

37 Which company has the strongest natural hedge for a US-dollar External Commercial Borrowing?

38 A foreign loan offers a lower stated interest rate than a domestic loan. Before choosing it, which additional factor is most important to evaluate?

39 An MSME has profitable sales but faces a cash shortage because large customers take 90 days to pay invoices. Which financing method most directly addresses the problem?

40 An MSME has a viable project but cannot provide enough collateral for a conventional bank loan. Which support mechanism is most relevant?

41 A company purchases a 91-day Treasury Bill with a face value of $10,000,000 for $9,720,000 and holds it to maturity. Assuming reinvestment at the same periodic return, what is the effective annual yield using a 365-day year?

42 A 91-day Treasury Bill with face value $1,000,000 is quoted at a bank discount rate of 5.8% using a 360-day year. What are its purchase price and bond-equivalent yield using a 365-day year?

43 A treasury buys a 180-day Treasury Bill at an investment yield of 5.9% and sells it after 60 days, when the investment yield for its remaining 120 days is 7.0%. Using simple-interest pricing and a 365-day year, what is the annualized realized holding-period return?

44 A company issues 90-day Commercial Paper with face value $50,000,000 at an 8% simple discount rate using a 365-day year. It also pays an issuance fee of $100,000 immediately. What is the annualized financing cost based on net proceeds?

45 A highly rated company routinely funds permanent working capital by issuing 30-day Commercial Paper. Its assets have stable five-year economic lives, and the backup credit line can be cancelled after a covenant breach. Which risk is most structurally significant?

46 A company compares 120-day Commercial Paper carrying a 7.2% discount rate and a 0.25% issuance fee with a one-year bank loan charging 7.6% interest and requiring a 10% non-interest-bearing compensating balance. Using a 365-day year and annualized simple costs, which alternative is cheaper?

47 A treasury purchases a 180-day negotiable Certificate of Deposit yielding 6.4%. After 60 days, the market yield for comparable 120-day CDs rises to 7.1%, and the treasury sells the CD. Using simple-interest pricing and a 365-day year, what is its annualized holding-period return?

48 A taxable corporate investor can buy a CD yielding 7.8% or a tax-exempt Treasury Bill yielding 6.05%. The tax rate is 25%, and the CD has an expected annual credit-loss cost of 0.15% of principal. Ignoring timing differences, which investment has the higher expected after-tax return?

49 On the same future date, a company expects highly certain US-dollar customer receipts of $4.8 million and supplier payments of $3.1 million. If settlement timing and credit risk are immaterial, what forward transaction most efficiently hedges the net economic exposure?

50 Under the Miller–Orr cash management model, daily net cash-flow variance increases by a factor of eight while transaction cost, opportunity cost, and the lower cash limit remain unchanged. How does the distance between the upper and lower control limits change?

51 A company has annual credit sales of $365 million, evenly distributed through the year. Its days sales outstanding increases from 42 to 52 days without any change in sales or margins. At a 9% annual financing rate, what is the approximate incremental annual financing cost?

52 A treasury employee receives an email, apparently from a regular supplier, requesting that future payments be sent to a new bank account. Which control most directly addresses the principal fraud risk before the master data is changed?

53 A multinational implements a physical cross-border cash pool in which subsidiary surpluses are swept daily to the parent. Which consequence distinguishes physical pooling from merely consolidating bank information?

54 Under IFRS 9, a derivative was designated as a cash-flow hedge of a forecast purchase. The purchase is now no longer expected to occur. What should happen to the effective hedge amount accumulated in the cash-flow hedge reserve?

55 An External Commercial Borrowing has a dollar benchmark rate of 5.2%, a lender spread of 2.1%, an annual currency-hedging cost of 4.0%, and an upfront fee of 1.2% amortized evenly over three years. The borrower must gross up interest for 10% withholding tax. Using additive annualized components except for the gross-up, what is the approximate annual all-in cost?

56 An Indian exporter with reliable dollar revenues is considering a dollar-denominated External Commercial Borrowing. Which structure creates the strongest natural hedge without unnecessarily over-hedging?

57 A firm can borrow domestically for one year at a fixed 11.2% or obtain a one-year dollar ECB at 6.5%. The one-year forward premium on dollars is 4.8%. Ignoring taxes and fees, which statement is correct if the ECB is fully hedged?

58 An MSME has eligible inventory of $8 million, trade creditors related to that inventory of $2 million, and receivables of $6 million, of which $1.5 million are over 90 days and ineligible. A lender applies a 25% margin to net inventory and a 40% margin to eligible receivables. What is the drawing power?

59 An MSME has annual credit sales of $60 million and average collection time of 60 days. Its current annual costs are 1.5% of sales for bad debts, 0.6% for receivables administration, and 12% financing on average receivables. A non-recourse factor charges 2% of sales and 10% interest on an 80% advance against average receivables. Using 365 days, what is the approximate annual financial effect of accepting the factor's offer?

60 An MSME has annual sales of $109.5 million and annual cost of goods sold of $73 million, both evenly distributed. Its inventory days decrease by 12, receivable days increase by 3, and payable days decrease by 5. What is the net change in working-capital financing required?