CCMT – Certified California Municipal Treasurer |
Comprehensive Study Guide, Practice Exam, Exam
Questions & Answers, Exam Prep Test Bank, Public
Finance, Municipal Treasury Management, Cash &
Investment Management, Budget Development, Debt
Administration, Government Accounting, Financial
Reporting, Internal Controls, Detailed Rationales,
Certification Success
Question 1: Under California Government Code Section 53646, what is the
primary requirement for a local agency’s investment policy regarding the
quarterly report?
A. It must be submitted to the California State Treasurer’s Office for approval.
B. It must be presented to the agency’s governing board within 30 days of the end of the
quarter.
C. It must be audited by an independent CPA firm before submission.
D. It must include a full list of all security holdings by CUSIP number and market value.
CORRECT ANSWER: B. It must be presented to the agency’s governing board
within 30 days of the end of the quarter.
Rationale: California Government Code §53646 requires that the investment officer
submit a quarterly report to the governing body within 30 days after the end of the
quarter. While the report should include transaction data and holdings, the timing of the
submission to the board is the specific statutory requirement in this context.
Question 2: Which of the following is a permissible investment for a California
municipal treasurer under Section 53601 of the Government Code?
A. Unsecured corporate notes rated below investment grade.
B. Negotiable certificates of deposit issued by a nationally chartered bank.
C. Common stock of publicly traded California-based corporations.
D. Commodities futures contracts for hedging fuel costs.
CORRECT ANSWER: B. Negotiable certificates of deposit issued by a nationally
chartered bank.
Rationale: Section 53601 allows investment in negotiable certificates of deposit issued
by a nationally or state-chartered bank, provided they meet specific collateralization
requirements. Stocks, below-investment-grade securities, and commodities futures are
explicitly prohibited for public funds under this section.
Question 3: What is the maximum maturity limit for a security purchased
under the standard provisions of California Government Code Section 53601,
unless explicitly extended by the agency’s investment policy?
,A. 1 year
B. 3 years
C. 5 years
D. 10 years
CORRECT ANSWER: C. 5 years
Rationale: Section 53601 establishes a 5-year maximum maturity for most authorized
investments, such as U.S. Treasury obligations, federal agency securities, and negotiable
CDs. A local agency may extend this to 10 years for certain securities only if specifically
authorized by its governing board in the investment policy.
Question 4: Under the California Debt and Investment Advisory Commission
(CDIAC) guidelines, what is the primary purpose of an investment policy for a
municipal treasurer?
A. To maximize returns at any cost.
B. To provide a framework for safety, liquidity, and yield.
C. To comply with federal SEC regulations exclusively.
D. To outline the treasurer's employment contract terms.
CORRECT ANSWER: B. To provide a framework for safety, liquidity, and yield.
Rationale: CDIAC emphasizes that the investment policy must establish clear objectives
prioritizing safety of principal, adequate liquidity to meet cash flow needs, and then
yield. This hierarchy ensures prudent management of public funds.
Question 5: Which type of security is explicitly authorized for investment by
California municipalities under Section 53601 as a "local agency investment
fund"?
A. California Local Agency Investment Fund (LAIF).
B. The Federal Reserve Bank of San Francisco Stock.
C. Shares in a money market fund not registered with the SEC.
D. Foreign sovereign bonds rated AA or higher.
CORRECT ANSWER: A. California Local Agency Investment Fund (LAIF).
Rationale: LAIF is a state-administered investment fund specifically authorized for local
agencies under state law. It is not a money market fund in the traditional SEC-registered
sense but is a permissible and common investment vehicle for California municipal
treasurers.
,Question 6: A California municipal treasurer is considering an investment in a
repurchase agreement. What is the minimum collateralization requirement for
such an agreement?
A. 90% of the purchase price.
B. 100% of the purchase price.
C. 102% of the purchase price.
D. 110% of the purchase price.
CORRECT ANSWER: C. 102% of the purchase price.
Rationale: The California Government Code requires that repurchase agreements be
collateralized at a minimum of 102% of the purchase price with eligible securities,
marked to market daily. This overcollateralization protects the principal in case of
counterparty default.
Question 7: When calculating the yield on a municipal bond investment, which
metric most accurately reflects the true annualized return, considering
compounding?
A. Nominal yield.
B. Current yield.
C. Yield to maturity (YTM).
D. Coupon rate.
CORRECT ANSWER: C. Yield to maturity (YTM).
Rationale: YTM accounts for the total return on a bond if held to maturity, including
coupon payments, reinvestment assumptions, and any capital gain or loss. It provides a
more accurate annualized return than simple coupon or current yield.
Question 8: In the context of the California Municipal Treasurer’s duties, what
does "liquidity" primarily refer to in the investment policy?
A. The ability to sell an asset without a significant price concession.
B. The interest rate paid on a demand deposit account.
C. The total amount of cash reserves in the general fund.
D. The number of investment transactions per quarter.
CORRECT ANSWER: A. The ability to sell an asset without a significant price
concession.
Rationale: Liquidity in public fund management refers to the capacity to quickly convert
investments into cash to meet upcoming expenditure needs. High liquidity means the
asset can be sold near its fair market value with minimal price impact.
, Question 9: Which federal act primarily regulates the conduct of municipal
advisors and requires them to register with the SEC, impacting how California
treasurers obtain investment advice?
A. The Securities Act of 1933.
B. The Securities Exchange Act of 1934.
C. The Dodd-Frank Wall Street Reform and Consumer Protection Act.
D. The Investment Company Act of 1940.
CORRECT ANSWER: C. The Dodd-Frank Wall Street Reform and Consumer
Protection Act.
Rationale: The Dodd-Frank Act expanded the regulatory framework to include
municipal advisors, requiring them to register with the SEC and adhere to fiduciary
duties. This directly affects how treasurers engage with advisors for investment
strategies.
Question 10: What is the maximum percentage of a California local agency's
total investment portfolio that can be held in commercial paper under the
Government Code?
A. 10%
B. 15%
C. 20%
D. 25%
CORRECT ANSWER: D. 25%
Rationale: Government Code §53601 limits investment in commercial paper to 25% of
the agency's total investment portfolio. This concentration limit is designed to mitigate
credit risk from the corporate sector.
Question 11: If a California municipal treasurer purchases a U.S. Treasury bill
with a 180-day maturity, what is the security's primary risk exposure?
A. Default risk.
B. Interest rate risk.
C. Liquidity risk.
D. Currency risk.
CORRECT ANSWER: B. Interest rate risk.
Rationale: U.S. T-bills are backed by the full faith and credit of the U.S. government, so
default risk is negligible. However, the price of any fixed-income security can fluctuate
with interest rates, and even short-term bills are subject to some degree of reinvestment
and price risk.
Comprehensive Study Guide, Practice Exam, Exam
Questions & Answers, Exam Prep Test Bank, Public
Finance, Municipal Treasury Management, Cash &
Investment Management, Budget Development, Debt
Administration, Government Accounting, Financial
Reporting, Internal Controls, Detailed Rationales,
Certification Success
Question 1: Under California Government Code Section 53646, what is the
primary requirement for a local agency’s investment policy regarding the
quarterly report?
A. It must be submitted to the California State Treasurer’s Office for approval.
B. It must be presented to the agency’s governing board within 30 days of the end of the
quarter.
C. It must be audited by an independent CPA firm before submission.
D. It must include a full list of all security holdings by CUSIP number and market value.
CORRECT ANSWER: B. It must be presented to the agency’s governing board
within 30 days of the end of the quarter.
Rationale: California Government Code §53646 requires that the investment officer
submit a quarterly report to the governing body within 30 days after the end of the
quarter. While the report should include transaction data and holdings, the timing of the
submission to the board is the specific statutory requirement in this context.
Question 2: Which of the following is a permissible investment for a California
municipal treasurer under Section 53601 of the Government Code?
A. Unsecured corporate notes rated below investment grade.
B. Negotiable certificates of deposit issued by a nationally chartered bank.
C. Common stock of publicly traded California-based corporations.
D. Commodities futures contracts for hedging fuel costs.
CORRECT ANSWER: B. Negotiable certificates of deposit issued by a nationally
chartered bank.
Rationale: Section 53601 allows investment in negotiable certificates of deposit issued
by a nationally or state-chartered bank, provided they meet specific collateralization
requirements. Stocks, below-investment-grade securities, and commodities futures are
explicitly prohibited for public funds under this section.
Question 3: What is the maximum maturity limit for a security purchased
under the standard provisions of California Government Code Section 53601,
unless explicitly extended by the agency’s investment policy?
,A. 1 year
B. 3 years
C. 5 years
D. 10 years
CORRECT ANSWER: C. 5 years
Rationale: Section 53601 establishes a 5-year maximum maturity for most authorized
investments, such as U.S. Treasury obligations, federal agency securities, and negotiable
CDs. A local agency may extend this to 10 years for certain securities only if specifically
authorized by its governing board in the investment policy.
Question 4: Under the California Debt and Investment Advisory Commission
(CDIAC) guidelines, what is the primary purpose of an investment policy for a
municipal treasurer?
A. To maximize returns at any cost.
B. To provide a framework for safety, liquidity, and yield.
C. To comply with federal SEC regulations exclusively.
D. To outline the treasurer's employment contract terms.
CORRECT ANSWER: B. To provide a framework for safety, liquidity, and yield.
Rationale: CDIAC emphasizes that the investment policy must establish clear objectives
prioritizing safety of principal, adequate liquidity to meet cash flow needs, and then
yield. This hierarchy ensures prudent management of public funds.
Question 5: Which type of security is explicitly authorized for investment by
California municipalities under Section 53601 as a "local agency investment
fund"?
A. California Local Agency Investment Fund (LAIF).
B. The Federal Reserve Bank of San Francisco Stock.
C. Shares in a money market fund not registered with the SEC.
D. Foreign sovereign bonds rated AA or higher.
CORRECT ANSWER: A. California Local Agency Investment Fund (LAIF).
Rationale: LAIF is a state-administered investment fund specifically authorized for local
agencies under state law. It is not a money market fund in the traditional SEC-registered
sense but is a permissible and common investment vehicle for California municipal
treasurers.
,Question 6: A California municipal treasurer is considering an investment in a
repurchase agreement. What is the minimum collateralization requirement for
such an agreement?
A. 90% of the purchase price.
B. 100% of the purchase price.
C. 102% of the purchase price.
D. 110% of the purchase price.
CORRECT ANSWER: C. 102% of the purchase price.
Rationale: The California Government Code requires that repurchase agreements be
collateralized at a minimum of 102% of the purchase price with eligible securities,
marked to market daily. This overcollateralization protects the principal in case of
counterparty default.
Question 7: When calculating the yield on a municipal bond investment, which
metric most accurately reflects the true annualized return, considering
compounding?
A. Nominal yield.
B. Current yield.
C. Yield to maturity (YTM).
D. Coupon rate.
CORRECT ANSWER: C. Yield to maturity (YTM).
Rationale: YTM accounts for the total return on a bond if held to maturity, including
coupon payments, reinvestment assumptions, and any capital gain or loss. It provides a
more accurate annualized return than simple coupon or current yield.
Question 8: In the context of the California Municipal Treasurer’s duties, what
does "liquidity" primarily refer to in the investment policy?
A. The ability to sell an asset without a significant price concession.
B. The interest rate paid on a demand deposit account.
C. The total amount of cash reserves in the general fund.
D. The number of investment transactions per quarter.
CORRECT ANSWER: A. The ability to sell an asset without a significant price
concession.
Rationale: Liquidity in public fund management refers to the capacity to quickly convert
investments into cash to meet upcoming expenditure needs. High liquidity means the
asset can be sold near its fair market value with minimal price impact.
, Question 9: Which federal act primarily regulates the conduct of municipal
advisors and requires them to register with the SEC, impacting how California
treasurers obtain investment advice?
A. The Securities Act of 1933.
B. The Securities Exchange Act of 1934.
C. The Dodd-Frank Wall Street Reform and Consumer Protection Act.
D. The Investment Company Act of 1940.
CORRECT ANSWER: C. The Dodd-Frank Wall Street Reform and Consumer
Protection Act.
Rationale: The Dodd-Frank Act expanded the regulatory framework to include
municipal advisors, requiring them to register with the SEC and adhere to fiduciary
duties. This directly affects how treasurers engage with advisors for investment
strategies.
Question 10: What is the maximum percentage of a California local agency's
total investment portfolio that can be held in commercial paper under the
Government Code?
A. 10%
B. 15%
C. 20%
D. 25%
CORRECT ANSWER: D. 25%
Rationale: Government Code §53601 limits investment in commercial paper to 25% of
the agency's total investment portfolio. This concentration limit is designed to mitigate
credit risk from the corporate sector.
Question 11: If a California municipal treasurer purchases a U.S. Treasury bill
with a 180-day maturity, what is the security's primary risk exposure?
A. Default risk.
B. Interest rate risk.
C. Liquidity risk.
D. Currency risk.
CORRECT ANSWER: B. Interest rate risk.
Rationale: U.S. T-bills are backed by the full faith and credit of the U.S. government, so
default risk is negligible. However, the price of any fixed-income security can fluctuate
with interest rates, and even short-term bills are subject to some degree of reinvestment
and price risk.
