CGFO-DEBT ADMINISTRATION QUESTIONS AND CORRECT ANSWERS

CGFO-DEBT ADMINISTRATION
QUESTIONS AND CORRECT
ANSWERS
DerivativesA2-A2Ans--
FinancialA2instrumentaA2whoseA2valueA2isA2basedA2uponA2(derivedA2from)A2theA2valueA2ofA
2anotherA2asset


BasisA2RiskA2-A2Ans--
RiskA2thatA2theA2valueA2ofA2futureA2contractA2willA2notA2moveA2(mismatched)A2inA2lineA2wit
hA2thatA2ofA2theA2underlyingA2asset

TermA2MismatchA2RiskA2-A2Ans--
InabilityA2toA2findA2aA2suitableA2counterpartyA2forA2aA2swapA2transaction

RolloverA2RiskA2-A2Ans--
TheA2maturityA2ofA2theA2derivativesA2isA2shorterA2thanA2theA2maturityA2ofA2theA2hedgeableA
2item


CounterpartyA2(Credit)A2RiskA2-A2Ans--
AA2riskA2toA2eachA2partyA2ofA2aA2contractA2thatA2theA2counterpartyA2willA2notA2fulfillA2itsA2co
ntractualA2obligationA2(ieA2cannotA2makeA2futureA2paymentsA2orA2cannotA2makeA2aA2termi
nationA2payment)

TerminationA2RiskA2-A2Ans--
PossibilityA2thatA2theA2derivativeA2mayA2endA2beforeA2maturityA2thusA2havingA2toA2makeA2a
A2terminationA2ofA2theA2interestA2rateA2swap


InterestA2RateA2RiskA2-A2Ans--
ChangesA2inA2theA2interestA2rateA2mayA2reduceA2orA2increaseA2theA2marketA2valueA2ofA2th
eA2asset.

Market-accessA2RiskA2-A2Ans--
TheA2riskA2thatA2theA2investorA2willA2beA2unableA2toA2enterA2creditA2marketsA2orA2thatA2cred
itA2willA2becomeA2moreA2costly

TypesA2ofA2derivativeA2risksA2-A2Ans--
Basis,A2termA2mismatch,A2rollover,A2interestA2rate,A2counterparty,A2terminationA2andA2mar
ketA2access

MunicipalA2BondsA2-A2Ans--
DebtA2securitiesA2issuedA2byA2states,A2cities,A2countiesA2andA2otherA2governmentalA2entiti

, esA2toA2financeA2primarilyA2capitalA2projectsA2suchA2asA2buildings,A2highwaysA2andA2sewe
r.

BankA2NotesA2-A2Ans--DirectA2loansA2byA2aA2bankingA2institution.

BondsA2thatA2areA2taxableA2orA2taxA2exemptA2-A2Ans--MunicipalA2bonds

CommercialA2PaperA2-A2Ans--
UnsecuredA2shortA2termA2loanA2securedA2byA2theA2borrower'sA2financialA2health

MunicipalA2DebtA2-A2Ans--
MunicipalA2bonds,A2bankA2notes,A2commercialA2paper,A2leases,A2stateA2revolvingA2loanA2f
undA2program

CertificatesA2ofA2ParticipationA2(COP)A2-A2Ans--
AllowsA2anA2investorA2toA2buyA2aA2shareA2ofA2theA2improvementsA2orA2infrastructureA2theA2
governmentA2intendsA2toA2fund.A2DoesA2notA2requireA2aA2voteA2ofA2citizens

TaxA2ExemptA2BondsA2-A2Ans--
ExemptA2fromA2federalA2taxesA2andA2canA2beA2exemptA2fromA2stateA2taxes.A2RestrictsA2th
eA2purposeA2ofA2debtA2primarilyA2toA2publicA2purpose

TaxableA2BondsA2-A2Ans--NotA2exemptA2fromA2taxesA2andA2hasA2aA2higherA2yield.

PrivateA2activityA2testA2-A2Ans--
FinancedA2assetsA2availableA2forA2publicA2use.A2PrivateA2purposeA2useA2ofA2theA2assetA2m
ustA2beA2lessA2thanA210%A2andA2paymentsA2fromA2privateA2sourcesA2mustA2beA2lessA2than
A210%


WhatA2happensA2ifA2theA2privateA2activityA2testA2fails?A2-A2Ans--
TaxA2exemptA2bondsA2couldA2becomeA2taxable

DebtA2ManagementA2PoliciesA2shouldA2includeA2(asA2recommendedA2byA2GFOA)A2-
A2Ans--
DebtA2limits,A2debtA2issuanceA2practices,A2useA2ofA2derivatives,A2debtA2structuringA2practi
ces,A2andA2debtA2managementA2practices.A2AlsoA2debtA2perA2resident,A2debtA2toA2persona
lA2income,A2debtA2toA2taxableA2propertyA2valueA2andA2debtA2serviceA2paymentsA2asA2aA2pe
rcentageA2ofA2generalA2fundA2orA2expenditures

CapitalA2ImprovementA2ProgramA2-A2Ans--
FinancialA2planning,A2budgetingA2andA2managementA2tool

CurrentA2RevenueA2-A2Ans--SufficientA2revenueA2streamA2and/
orA2fundA2balanceA2toA2supportA2operatingA2expenses,A2capitalA2projects,A2reserveA2requir
ementsA2andA2existingA2parityA2debt.