TREASURY AND INVESTMENT MANAGEMENT EXAMINATION

Sample Examination

1. Duration:

a) is a weighted average maturity of the 5. In comparison to similar non-callable

present value of cash flows for a securities, callable securities have:
security.
b) is influenced by the coupon rate and a) higher required and expected yields
yield to maturity. than non-callable securities.
c) provides an approximation of the b) longer expected maturity.
percentage price change in a bond c) less constraint on upward price
due to a change in interest rates. movement.
d) all of the above. d) lower coupon rates.

2. Monetary policy refers to: 6. The value of active portfolio

management for small governments is
a) the government’s use of spending potentially limited by all of the
and taxation to influence the following EXCEPT:
economy.
b) the government’s use of reserve a) Time consuming
requirements to influence the money b) Increased transaction costs
supply. c) Need for greater investment
c) the government’s use of open market management skills
operations to influence the money d) Ignores changes in the markets
supply.
d) B and C 7. For long-term investments, which
accounting method provides superior
3. Which of the following is not a information for decision making?
consideration in interest rate swap
agreements? a) Cash basis accounting
b) Accrual basis accounting
a) Floating-rate index c) Market (fair) value accounting
b) Fixed-rate payer d) All methods can be equally useful.
c) Floating-rate payer
d) Fixed-rate index 8. Securities lending is appropriate:

4. The primary Interest Rate Risk concern a) for all governments.

of holders of long-term fixed income b) for governments seeking safe
securities is: returns.
c) for governments willing to take risk
a) interest rates will rise and reduce the to obtain higher returns.
value of the bond portfolio. d) for governments with little
b) interest rates will fall and reduce the experience in investment
value of the bond portfolio. management.
c) interest rates will fall and limit the
ability to invest at high rates. 9. Investment grade bonds have the
d) interest rates will rise and increase following ratings [by Standard and
the value of the bond portfolio. Poor’s (Moody’s)]:

a) AAA (Aaa)
b) AA (Aa) or higher
c) BBB (Baa) or higher
d) BB (Ba) or higher
 TREASURY AND INVESTMENT MANAGEMENT EXAMINATION

Sample Examination

c) Proportional
d) Unrelated

10. The Investment Policy Checklist for

Pension Fund Assets indicates which of
the following as the primary determinant 15. An upward sloping yield curve is also
of investment return? known as:

a) Diversification a) Abnormal
b) Credit quality b) Inverted
c) Asset allocation c) Flat
d) Security selection d) Normal

11. Treasury securities are: 16. Which of the following takes priority in
cash management?
a) considered by most investors to be
the safest investments in the world. a) Reducing float
b) taxable to investors. b) Maintaining liquidity
c) generally more liquid than corporate c) Obtaining highest yield
obligations. d) Speed in processing
d) All of the above.
17. Which of the following is preferred for
12. An investment policy statement should the majority of the government’s short-
include which of the following? term borrowing?

a) Direct loan
a) Policies regarding ethics and
b) Line of credit
conflicts of interest
c) Tax Exempt Debt
b) A statement of the standard of care
d) Reverse Repo
c) Delegation of investment authority
d) All of the above
18. Cash flow forecasting is used for all of
the following EXCEPT:
13. Liquidity is:
a) optimizing the use of the
a) the frequency with which a government’s funds.
government trades its securities. b) identifying aggressive investment
b) the speed with which a government opportunities.
invests its cash resources into c) insuring liquidity.
securities. d) avoiding need to sell securities
c) the ability to convert securities before maturity.
quickly into cash without loss in
value. 19. Interest rates are generally ________ at
d) the gain due to accurate trading the peak of the business cycle and
timing. beginning the retreat into recession.
14. The relationship between fixed-income a) high and falling
security prices and interest rates can be b) low and rising
described as: c) high and rising
d) low and falling
a) Direct
b) Inverse
 TREASURY AND INVESTMENT MANAGEMENT EXAMINATION

Sample Examination

20. What tool does the Federal Reserve c) investing only in U.S. Treasury
Board NOT USE to meet its goal of securities.
maximizing employment and d) employing a buy-and-hold
minimizing inflation? investment strategy.

a) Open market operations 25. Non-negotiable certificates of deposit

b) Set discount window rates are:
c) Set Bank Reserve requirements
d) Set tax rates and government a) available on the secondary market.
spending levels b) highly volatile derivatives.
21. Diversifying investments in a portfolio c) guaranteed by the full faith and
can help to reduce portfolio risk. credit of the U.S. government.
Diversification can be achieved by all of d) illiquid.
the following EXCEPT: 26. A prudent reason to use reverse
repurchase agreements is to:
a) buying the highest quality assets.
b) limiting investments in a particular a) enhance portfolio returns through
business sector. leveraging.
c) limiting investments from a specific b) diversify investments in a portfolio.
issuer. c) avoid liquidating securities to meet
d) varying the credit quality of cash shortfalls.
investments. d) avoid arbitrage calculations for bond
proceeds.
22. Which of the following are required to
comply with the Federal Reserve Bank 27. A wire transfer agreement with the
of New York’s capital adequacy government’s bank is important because
guidelines? it:

a) Primary dealers a) specifies the responsibilities and

b) Second-tier dealers liabilities of the parties to the
c) Regional dealers transaction.
d) Direct issuers b) is required by the National
Automated Clearing House
23. The practice of using delivery vs. Association (NACHA).
payment (DVP) procedures when c) reduces processing time and allows
buying/selling an investment protects an the government to earn extra
investor from: investment income.
d) is required by the Federal Reserve
a) churning. for delivery vs. payment (DVP)
b) fraud. transactions.
c) price gouging.
d) market risk. 28. Marking-to-market refers to the practice
of:
24. Credit risk can be minimized by:
a) comparing the historical cost of an
a) limiting the number of investments investment to its value at maturity.
in a portfolio that are subject to rapid b) determining the relative value of
market swings. investments in various market
b) keeping maturities fairly short if sectors.
interest rates are expected to rise. c) comparing investment performance
to a benchmark.
 TREASURY AND INVESTMENT MANAGEMENT EXAMINATION

Sample Examination

d) determining the market value of an 34. Normal required rates of return on fixed
investment in a portfolio. income investments include a real rate of
return to compensate investors for
29. An investment adviser with discretionary deferring consumption and additional
authority: required return to compensate for:

a) executes investment transactions on a) recent inflation.

the government’s behalf. b) expected inflation.
b) must obtain the government’s c) market risk.
approval for each investment d) reinvestment rate risk.
transaction.
c) acts as a government’s safekeeping 35. To maintain a high credit rating, rating
agent. agencies expect governments to:
d) provides indemnification for
counterparty failures. a) keep a fund balance equal to 25% of
annual revenues.
30. Collection float can be reduced by using b) avoid derivative securities.
which of the following? c) have a written investment policy.
d) issue bonds regularly.
a) Lockbox
b) Purchasing card program
c) Positive pay
d) Concentration account

31. GFOA’s Sample Investment Policy

states that to mitigate interest rate risk,
the government shall:

a) limit investments to the safest types

of securities.
b) diversify the investment portfolio.
c) invest primarily in longer-term
securities.
d) structure the investment portfolio
with maturities to match cash needs.

32. Credit analysis of banks should consider:

a) cross-industry and time-series ratio

analysis.
b) CRA rating.
c) expected size of deposits.
d) capital adequacy.

33. Repurchase agreements are:

a) derivatives.
b) buy-sell transactions.
c) unsecured lending arrangements.
d) collateralized loans.
 TREASURY AND INVESTMENT MANAGEMENT EXAMINATION

Sample Examination

KEY:

1. D
2. D
3. D
4. A
5. A
6. D
7. C
8. C
9. C
10. C
11. D
12. D
13. C
14. B
15. D
16. B
17. B
18. B
19. A
20. D
21. A
22. A
23. B
24. C
25. D
26. C
27. A
28. D
29. A
30. A
31. D
32. D
33. B
34. B
35. C