Question 1

Which of the following statements concerning remote disbursement and controlled disbursement is correct?

Accepted Answer

Remote disbursement is often viewed as unethical because it involves outsourcing the entire disbursement process to a third-party vendor, which can lead to a loss of control over the disbursement function. Controlled disbursement, on the other hand, allows the company to maintain control over the disbursement process by only releasing funds to vendors on a predetermined schedule. While this practice may be viewed as inconvenient by some vendors, it is not usually seen as unethical.

Question 2

The field of Electronic Commerce (EC) is awash with acronyms (i.e., a word formed from the initial letter or letters of a series of successive words). Which of the following acronyms does not belong with the other Electronic Commerce-related acronyms?

Accepted Answer

SWIFT (Society for Worldwide Interbank Financial Telecommunications) and CHIPS (Clearing House Interbank Payments System) are both electronic payment systems used in EC. EDI (Electronic Data Interchange) is a standard format for exchanging business documents electronically. SPECTRE is not an Electronic Commerce-related acronym, but rather the name of a fictional international terrorist organization in James Bond movies.

Question 3

A portfolio manager is evaluating investments in mortgage securities as part of a portfolio to fund long term liabilities. If she wants to minimize prepayment risk in her portfolio she is most likely to invest in:

Accepted Answer

Collateralized mortgage obligations (CMOs) provide a way to minimize prepayment risk in a mortgage security portfolio. CMOs are structured with different tranches that offer varying degrees of prepayment and interest rate risk, allowing a portfolio manager to select tranches with less prepayment risk. Mortgage loans have the highest prepayment risk as borrowers can prepay their mortgages at any time, while mortgage pass through securities have moderate prepayment risk as they can be prepaid as a result of refinancing or defaults. Investment evaluation is not a type of investment.

Question 4

The joint probability of events A and B is 32 percent with the probability of event A being 60 percent and the probability of event B being 50 percent. Based on this information, the conditional probability of event A given event B has occurred is closest to:

Accepted Answer

The conditional probability of event A given event B is calculated as P(A|B) = P(A and B) / P(B) = 0.32 / 0.50 = 0.64 or 64.0%.

Question 5

Eurodollars are best described as __________.

Accepted Answer

Eurodollars are U.S. dollar-denominated deposits that are held outside of the United States and are not subject to U.S. banking regulations. The term "euro" does not refer to the currency of the European Union, but rather to the fact that the initial market for such deposits was in Europe.

Question 6

Securities market is a market place in which stocks, bonds, and other financial instruments are traded. Such markets can be:

Accepted Answer

All the given options are correct. Securities market can be a physical or electronic marketplace where outstanding securities like stocks and bonds are traded.

Question 7

Which of the following is not a standard method of transferring funds when using concentration banking?

Accepted Answer

Payable through draft (PTD) is not a standard method of transferring funds when using concentration banking. Depository transfer check, automated clearinghouse electronic transfer, and wire transfer are all common methods used in concentration banking. PTD is typically used for payments between buyers and sellers in commercial transactions, rather than for intercompany transfers in a concentration banking system.

Question 8

A document made available to prospective security buyers that describes the firm and a new security issue. ___________ are responsible for ensuring that all the information in the prospectus accurately represents the facts.

Accepted Answer

Federal agencies, such as the Securities and Exchange Commission (SEC), are responsible for ensuring that all information in a prospectus accurately represents the facts.

Question 9

Which of the following marketable securities is issued by the U.S. federal government?

Accepted Answer

T-bills, or Treasury bills, are short-term marketable securities issued by the U.S. federal government to finance government spending. Therefore, the correct choice is D. Commercial papers and negotiable certificates of deposit are issued by corporations, while repurchase agreements involve the sale and repurchase of securities between two parties.

Question 10

An equity analyst working for a growth oriented mutual fund has a tendency to misvalue the stocks of popular companies that she has previously recommended and the fund already owns. Her behavior is most likely consistent with which of the following biases?

Accepted Answer

The analyst's behavior is consistent with confirmation bias, as she is likely seeking out information that confirms her previous recommendations and ownership of popular stocks rather than objectively analyzing their value.

Question 11

The optimal balance of marketable securities held to take care of probable deficiencies in the firm's cash account is referred to as the __________ segment in the one's portfolio of short-term marketable securities.

Accepted Answer

The "Ready cash" segment refers to the portion of marketable securities that are easily convertible to cash to cover any short-term cash deficiencies.

Question 12

Availability float is the __________.

Accepted Answer

The answer of Availability float is the __________.
...

Question 13

Under which measurement scale is data categorized, but not ranked?

Accepted Answer

The answer of Under which measurement scale is data categorized,...

Question 14

Which of the following statements most accurately describes the modern approach to cash management?

Accepted Answer

The answer of Which of the following statements most accurately...

Question 15

Deposit float is the __________.

Accepted Answer

Deposit float is the time during which the check received by the firm remains uncollected.

Question 16

The marketable securities available for unassigned purposes at the current time is referred to as the __________ segment in the one's portfolio of short-term marketable securities.

Accepted Answer

The segment of marketable securities available for unassigned purposes is referred to as free cash. Ready cash refers to funds that are immediately available for use, controlled cash is funds that are strictly regulated and only available for specific purposes, and cash and cash equivalents refer to all cash on hand, plus any short-term, highly liquid investments that can be readily converted to cash.

Question 17

An analyst is developing net present value (NPV) profiles for two investment projects. The only difference between the two projects is that Project 1 is expected to receive larger cash flows early in the life of the project, while Project 2 is expected to receive larger cash flows late in the life of the project. The slope of the NPV profile for Project 1 when compared to the slope of the NPV profile for Project 2 is most likely:

Accepted Answer

The slope of an NPV profile is a measure of the project's sensitivity to changes in the discount rate. A flatter slope implies greater sensitivity to discount rate changes, while a steeper slope implies lower sensitivity to discount rate changes.

Since Project 1 receives larger cash flows early in the life of the project, the early cash flows are worth more in present value terms than the later cash flows. This means that project 1 is more sensitive to changes in the discount rate in the early stages of the project, thus resulting in a flatter slope compared to Project 2, which is more sensitive to changes in the discount rate in the later stages, thus resulting in a steeper slope. Therefore, choice B is the best answer.

Question 18

Which of the following was not suggested by John Maynard Keynes as a reason for holding cash?

Accepted Answer

John Maynard Keynes did not mention the investment motive for holding cash, while he discussed the speculative, precautionary, and transaction motives. The speculative motive refers to holding cash to take advantage of potential investment opportunities or to speculate on market changes. The precautionary motive refers to holding cash as a precautionary measure to handle unexpected expenses or income fluctuations. The transaction motive refers to holding cash to facilitate transactions, such as purchasing goods or services or paying bills.

Question 19

Which of the following is least likely to be considered a short-term marketable security?

Accepted Answer

Short-term marketable securities typically have maturities of less than one year. Choice A has a remaining maturity of one year which does not fit this criteria.

Question 20

Collection float is the __________.

Accepted Answer

Collection float is the total time between the mailing of the check by the customer and the availability of cash to the receiving firm.

Exam 2: Certified Trust and Financial Advisor