CGFM- Study Guide 3 -Governmental
Financial Management Questions with
Quality Answers.
Internal controls should help prevent goods from being stolen. True or false? Answer: - Answer
True. One of the primary functions of internal control systems is to prevent loss, misuse or
misappropriation of assets
Which of the following is inappropriate?
a. The person receiving a deposit makes out the deposit slip.
b. The person making out the deposit slip makes the deposit.
c. The person sending out the bill records the transaction in the system.
d. The person recording transactions reconciles the bank statements. - Answer (b). The person
making the deposit slip has the ability to alter the deposit. Thus, these are not compatible
duties. Often, the person receiving the deposit also makes out the deposit slip.
A warrant is: a. a request for funds drawn on the treasury of a government.
b. a request for funds drawn on a financial institution regulated by the Federal Reserve System.
c. a request for funds to cover a ZBA.
d. a request for the payment of a recurring electronic payment. - Answer (a). A request for
funds drawn on a financial institution is a check. A request for funds to cover a ZBA is an intra-
bank transfer. A request for the payment of a recurring electronic payment is a request for an
electronic funds transfer.
Which of the following should not be done through electronic payments?
a. the payroll of the government
b. payments to retirees
c. a payment for a one-time purchase
d. payments for the purchase of investments - Answer (c). The amount of time involved in
setting up an account for an electronic payment would be too costly for a one-time purchase.
This is particularly true if the amount is small.
A government should establish a different bank account for each of its funds. True or false? -
Answer False. A government should concentrate its accounts for increased investment
potential. The accounting system should be used to track the cash balances for each fund.
Which of the following is not a duty of the Federal Reserve System? a. guaranteeing direct loans
of the federal government
,b. maintaining stability of the financial system
c. conducting monetary policy for the government.
d. supervising and regulating banking institutions - Answer (a). The Federal Reserve System
does not guarantee loans of the federal government. Loans are guaranteed by agencies of the
federal government.
A county government collects funds from property taxes in late December each year. The county
releases property taxes collected on behalf of school districts on the following July 1. Which of
the following investments would be the most prudent investment of this money for six months?
a. bond funds
b. commercial paper
c. equities
d. real estate
e. checking account interest - Answer (b). Commercial paper is a short-term investment
instrument, which would be the most appropriate and prudent given the limited time period.
Bond funds are long-term investments, while equities and real estate have a greater degree of
risk. The interest from a checking account would be much less than the interest from
commercial paper.
A county government is able to issue debt securities at an interest rate of 4 percent and can
invest that money in a U.S. government Treasury bill earning 5 percent. Which of the following
could prevent this combined transaction from being profitable?
a. total return b. benchmarking
c. prudent expert rule
d. arbitrage - Answer (d). The federal government has arbitrage restrictions on the amount
that can be earned from investments.
A county government is able to issue debt securities at an interest rate of 4 percent and can
invest that money in a U.S. government Treasury bill earning 5 percent. Which of the following
could prevent this combined transaction from being profitable?
a. total return
b. benchmarking
c. prudent expert rule
d. arbitrage - Answer (d). The federal government has arbitrage restrictions on the amount
that can be earned from investments.
Quotes for over-the-counter securities can be obtained on the:
a. NYSE.
b. NASDAQ.
, c. AMEX.
d. Chicago Board of Trade. - Answer (b). The NASDAQ provides the quotes for securities that
are traded over-the-counter. The other markets provide quotes only for the securities that are
listed on the appropriate exchange.
The prudent expert rule states that:
a. only persons with investment experience should sit on a board.
b. board members must hire investment expertise if such knowledge is not otherwise available.
c. it is sufficient for board members to be prudent in investing government funds.
d. board members should perform due diligence by reading and understanding investment
manager's reports before the board meetings. - Answer (b). If the individual or board
overseeing the government's investments does not have the knowledge or experience needed,
then the individual or board must acquire competent individuals or firms to assist in the
investment of those funds.
Which of the following investments types is the most liquid? a. equities b. bonds c. debentures
d. STIFs - Answer (d). Short-term investment funds (STIFs) give governments the flexibility to
purchase or redeem investments on a daily basis.
A government has a collateral agreement with its depository bank. The collateral is held in the
bank's trust department. The government is subject to:
a. interest rate risk.
b. liquidity risk.
c. custodial credit risk.
d. systematic risk. - Answer (c). Securities that are not held by the government or its agent,
and particularly if they are not held in the owner's name, have the greatest custodial credit risk.
The Depository Trust Company is responsible for:
a. facilitating the exchange of ownership of securities.
b. holding collateral as an interested third party.
c. handling Federal Reserve System wire payments.
d. validating the experience and knowledge of investment advisers. - Answer (a). The
Depository Trust Company (DTC) is a central repository through which members electronically
settle trades in corporate, mortgage-backed and municipal securities, and electronically transfer
security certificates.
Explain the difference between direct loans and guaranteed loans - Answer A direct loan exists
when a government agency disburses funds directly to the borrower and is repaid directly by
the borrower. A direct loan becomes an outlay for the government agency at the time the loan
is made.
Financial Management Questions with
Quality Answers.
Internal controls should help prevent goods from being stolen. True or false? Answer: - Answer
True. One of the primary functions of internal control systems is to prevent loss, misuse or
misappropriation of assets
Which of the following is inappropriate?
a. The person receiving a deposit makes out the deposit slip.
b. The person making out the deposit slip makes the deposit.
c. The person sending out the bill records the transaction in the system.
d. The person recording transactions reconciles the bank statements. - Answer (b). The person
making the deposit slip has the ability to alter the deposit. Thus, these are not compatible
duties. Often, the person receiving the deposit also makes out the deposit slip.
A warrant is: a. a request for funds drawn on the treasury of a government.
b. a request for funds drawn on a financial institution regulated by the Federal Reserve System.
c. a request for funds to cover a ZBA.
d. a request for the payment of a recurring electronic payment. - Answer (a). A request for
funds drawn on a financial institution is a check. A request for funds to cover a ZBA is an intra-
bank transfer. A request for the payment of a recurring electronic payment is a request for an
electronic funds transfer.
Which of the following should not be done through electronic payments?
a. the payroll of the government
b. payments to retirees
c. a payment for a one-time purchase
d. payments for the purchase of investments - Answer (c). The amount of time involved in
setting up an account for an electronic payment would be too costly for a one-time purchase.
This is particularly true if the amount is small.
A government should establish a different bank account for each of its funds. True or false? -
Answer False. A government should concentrate its accounts for increased investment
potential. The accounting system should be used to track the cash balances for each fund.
Which of the following is not a duty of the Federal Reserve System? a. guaranteeing direct loans
of the federal government
,b. maintaining stability of the financial system
c. conducting monetary policy for the government.
d. supervising and regulating banking institutions - Answer (a). The Federal Reserve System
does not guarantee loans of the federal government. Loans are guaranteed by agencies of the
federal government.
A county government collects funds from property taxes in late December each year. The county
releases property taxes collected on behalf of school districts on the following July 1. Which of
the following investments would be the most prudent investment of this money for six months?
a. bond funds
b. commercial paper
c. equities
d. real estate
e. checking account interest - Answer (b). Commercial paper is a short-term investment
instrument, which would be the most appropriate and prudent given the limited time period.
Bond funds are long-term investments, while equities and real estate have a greater degree of
risk. The interest from a checking account would be much less than the interest from
commercial paper.
A county government is able to issue debt securities at an interest rate of 4 percent and can
invest that money in a U.S. government Treasury bill earning 5 percent. Which of the following
could prevent this combined transaction from being profitable?
a. total return b. benchmarking
c. prudent expert rule
d. arbitrage - Answer (d). The federal government has arbitrage restrictions on the amount
that can be earned from investments.
A county government is able to issue debt securities at an interest rate of 4 percent and can
invest that money in a U.S. government Treasury bill earning 5 percent. Which of the following
could prevent this combined transaction from being profitable?
a. total return
b. benchmarking
c. prudent expert rule
d. arbitrage - Answer (d). The federal government has arbitrage restrictions on the amount
that can be earned from investments.
Quotes for over-the-counter securities can be obtained on the:
a. NYSE.
b. NASDAQ.
, c. AMEX.
d. Chicago Board of Trade. - Answer (b). The NASDAQ provides the quotes for securities that
are traded over-the-counter. The other markets provide quotes only for the securities that are
listed on the appropriate exchange.
The prudent expert rule states that:
a. only persons with investment experience should sit on a board.
b. board members must hire investment expertise if such knowledge is not otherwise available.
c. it is sufficient for board members to be prudent in investing government funds.
d. board members should perform due diligence by reading and understanding investment
manager's reports before the board meetings. - Answer (b). If the individual or board
overseeing the government's investments does not have the knowledge or experience needed,
then the individual or board must acquire competent individuals or firms to assist in the
investment of those funds.
Which of the following investments types is the most liquid? a. equities b. bonds c. debentures
d. STIFs - Answer (d). Short-term investment funds (STIFs) give governments the flexibility to
purchase or redeem investments on a daily basis.
A government has a collateral agreement with its depository bank. The collateral is held in the
bank's trust department. The government is subject to:
a. interest rate risk.
b. liquidity risk.
c. custodial credit risk.
d. systematic risk. - Answer (c). Securities that are not held by the government or its agent,
and particularly if they are not held in the owner's name, have the greatest custodial credit risk.
The Depository Trust Company is responsible for:
a. facilitating the exchange of ownership of securities.
b. holding collateral as an interested third party.
c. handling Federal Reserve System wire payments.
d. validating the experience and knowledge of investment advisers. - Answer (a). The
Depository Trust Company (DTC) is a central repository through which members electronically
settle trades in corporate, mortgage-backed and municipal securities, and electronically transfer
security certificates.
Explain the difference between direct loans and guaranteed loans - Answer A direct loan exists
when a government agency disburses funds directly to the borrower and is repaid directly by
the borrower. A direct loan becomes an outlay for the government agency at the time the loan
is made.
