FIN3703 Assignment 2 (DETAILED ANSWERS) Semester 1 2025 - DISTINCTION GUARANTEED

FIN3703 Assignment 2 (DETAILED ANSWERS) Semester 1 2025 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references ,. QUESTION 1 The most popular method of handling a cash surplus is through the use of capital market financial instruments. A. True B. False True False QUESTION 2 Segregation of duties refers to a process in which the treasurer establishes treasury policies, monitors their implementationand compliance, and constantly measures actual performance. A. True B. False True False Question 3 Not yet answered Marked out of 1.00 FOR QUESTIONS 3 AND 4 REFER TO THE FOLLOWING INFORMATION: You have been presented with the following information about Treasury Bills (TBs) that are trading in the secondary market: Bid/offer = 8.71/8.40% Face value = R100 000 Days to maturity = 35 (Note: Use 365 days.) QUESTION 3 ) Which of the following statements are correct? a. The price maker is prepared to buy TBs at 8.40%. correct b. The price maker is prepared to buyl TBs at 8.71%.. wrong c. The above offer would translate into a price of R99 164.80. wrong d. The above bid would translate into a price of R99 164.80. correct 1. a and b 2. b and c 3. c and d 4. a and d a. a and b b. b and c c. c and d d. a and d Clear my choice Question 4 Not yet answered Marked out of 1.00 Question 5 Not yet answered Marked out of 1.00 QUESTION 4 The yield to maturity associated with the bid is equal to … a) 8.71%. b) 8.78%. c) 8.86%. d) 8.93%. a. 8.71%. b. 8.78% c. 8.86%. d. 8.93% Clear my choice QUESTION 5 Which of the following statements correctly describe the disadvantage of cash concentration? a. Sweeping cash to different subsidiaries or sub-accounts can delay payments if it is not done in real time. b. It enforces a bureaucratic management approach where subsidiaries have less autonomy. c. It enhances ACH to clear cash and transfers it electronically and rapidly. d. It may expose the business to liquidity risk at the sub-account level. 1. a, b and c 2. a, b and d 3. b, c and d 4. a, c and d a. a, b and c b. a, b and d c. b, c and d d. a, c and d Clear my choice Question 6 Not yet answered Marked out of 1.00 QUESTION 6 Which of the following statements correctly describes the forward contracts? a. They are tailor-made instruments that are traded over the formal exchange. b. They are standardised financial instruments that have a low credit risk, and is easy for the parties involved to get out ofthe contract once it has been established. c. Because of their nature, it can be concluded that they are liquid and have very low credit risk. d. Because they are tailor-made, it is difficult to get out of once they have been established a. They are tailor-made instruments that are traded over the formal exchange. b. They are standardised financial instruments that have a low credit risk, and is easy for the parties involved to get outof the contract once it has been established. c. Because of their nature, it can be concluded that they are liquid and have very low credit risk. d. Because they are tailor-made, it is difficult to get out of once they have been established Clear my choice Question 7 Not yet answered Marked out of 1.00 QUESTION 7 FOR QUESTIONS 7, REFER TO THE FOLLOWING INFORMATION: You have been presented with the following information about Reserve Bank Debenture (RBD) that has been issued by theSouth African Reserve Bank (TBs) to ABSA Bank: Amount invested/norminal value = R10 million Issue date = 23 October 2024 Maturity date = 21 November 2024 Days = 30 days Interest = 8.6 p.a. (Note: Use 365 days.) QUESTION 7 The South African Reserve Bank must therefore pay ABSA bank at the end of the period an amount of … plus interest of … . a. R10 million: R70 680 b. R10 million: R78. 897 c. R10 million: R81 876 d. R10 million:R85 785 a. a. R10 million: R70 680 b. a. R10 million: R78. 897 c. a. R10 million: R81 876 d. a. R10 million:R85 785 Clear my choice Question 8 Not yet answered Marked out of 1.00 QUESTION 8 The managing directors of Non-Barbalas Beer Ltd, a manufacturer and distributor of alcoholic beverages located in Rosslyn,stated that the company’s individual locations manage their own bank accounts, foreign exchange transactions, customercredit, payables, borrowing and investment. In addition, central staff net payments between subsidiaries and hedge majorforeign exchange and interest rate risks. Based on Non-Barbalas Beer Ltd information above, the business portrays or exemplifies a good example of … a. complete decentralisation. b. incomplete decentration. c. complete centralisation. d. incomplete centralisation. 1. a and b 2. b and c 3. c and d 4. b and d a. a and b b. b and c c. c and d d. b and d Clear my choice Question 9 Not yet answered Marked out of 1.00 Question 10 Not yet answered Marked out of 1.00 QUESTION 9 FOR QUESTIONS 9 TO 11 REFER TO THE FOLLOWING INFORMATION: Van Schaik bookstore supplies textbooks to college and university bookstores. The books are supplied with a provision thatthey must be paid for within 30 days. In 2023 Van Schaik bookstore supplied and billed books totalling R760 000. Collections,net of return credits, during the year totalled R690 000. The company spent R300 000 acquiring the books that it Supplied. QUESTION 9 Using the accrual accounting value (accrual principles) the company’s net profit for the past year equals to ... . a. R390 000 b. R460 000 c. R480 000 d. R490 000 a. R390 000 b. R460 000 c. R480 000 d. R490 000 Clear my choice QUESTION 10 Using cash accounting value (cash principle principle) the company’s net cash flow for the past year equal to … . a. R390 000 b. R460 000 c. R480 000 d. R490 000 a. R390 000 b. R460 000 c. R480 000 d. R490 000 Clear my choice Question 11 Not yet answered Marked out of 1.00 QUESTION 11 Which one of the following of the following statements is correct? a. The accounting net income is more useful to the financial manager. b. The cash flow statement is more useful to the accountant. c. The cash flow statement is more useful to the financial manager. d. None of the above is correct a. The accounting net income is more useful to the financial manager. b. The cash flow statement is more useful to the accountant c. The cash flow statement is more useful to the financial manager. d. None of the above is correct Clear my choice Question 12 Not yet answered Marked out of 1.00 Read the following case study and answer questions 12 to 25. Dalton Ltd :A Giant Leader in JoJo Tank Market Dalton Ltd – is a third largest South African manufacturer of high-quality JoJo tanks with its head offices situated in Midrand.The company owns four branches, one in Naturena, the second in Ennerdale, the third in Pachuca and the fourth inRoodepoort. Although the market for JoJo tanks has been expanding extremely well, Dalton Ltd could not share in thisgrowth due to the technical problems experienced with the current machine. To increase its production and sales, thecompany is considering replacing the current injection moulding machine with a more technically advanced model which willcost the company R3 000 000 that will be raised as a loan from standard bank at a fixed interest rate of 11.75% per annum . In financing working capital, the company secured a total revolving credit limit of R170 000 from Capitec bank at an interestof 12.2% per annum. ADDITIONAL INFORMATION: Mac Robert, the chief executive officer (CEO) at Dalton Ltd appointed you (FIN3703 student) at the head office as a treasurerto replace the old injection moulding. The human resources department provided you with a detailed documents that among other list the following treasurerperformance agreement area (KPAs): KEY PERFOMANCE AREA (KPA) § Advise on the recruitment of treasury department personnel. ensure the implementation of GAAP. provide strategic leadership in the treasury office of the company. § Setting overall strategic organisational goals and objectives. § Cash and liquidity management. § Banking relationship management. § Corporate treasury risk management. The chief financial officer (CEO) of the company invited you to a briefing session on the policies of the company andpresented you with the following funding and sub-risk management policy documents. FUNDING POLICY The funding strategy shall be submitted to board of directors for approval before the commencement of the financial year forwhich it is applicable and shall be reviewed for amendment should the need arise. The funding strategy shall outline theborrowing requirement for the financial year in question and shall outline the different funding sources the company mayutilize to meet its borrowing requirement. The borrowing requirement consists of all short-term and long-term funding needsof the company. The following funding sources are authorized by the board of directors: MONEY MARKET CAPITAL MARKET § Commercial paper § Bank overdraft § Short-term loan § Treasury bill § Bank long-term loan DALTON’S RISK TREASURY POLICY There are various risks facing Dalton Ltd on regular basis which necessitate vigilance andprecautionary measures. Some of the risks include liquidity and interest rate risk. It is the company’s policy that identified risks must be managed within the principles of and riskmitigation strategies laid by the Board of Directors which are reflected in risk management policydocument. Dalton’s risk management policies consist of some of the following sub-risk policies CASH AND LIQUIDITY RISK MANAGEMENT POLICY The cash and liquidity risk management policyaims to define the mechanisms of how cash willbe managed within the company to mitigate risk.Forecasting tools are used to create a cashsurplus/requirement ladder, which is then utilizedfor investment/funding purposes respectively. CREDIT RISK MANAGEMENT POLICY Counterparty credit risk is the risk that thecompany may incur when dealing withcounterparties who may not be able to meet all ora portion of their commitments within a certaintime, credit limits and the utilization thereof areconfidential. It is the company policy that criteriaused to determine the credit limits shall not berevealed to any counterparty under anycircumstances. Recognized credit rating agencies,where possible, may be utilized in the creditevaluation process is critical. There shall becontinuous and constant monitoring of the creditquality of counterparties and any defaults will bewritten off as bad debts. Credit limits must beformally reviewed at least annually including therisk of default. INVESTMENT RISK MANAGEMENT POLICY The investment of funds must be carried out andbe deposited with the authorized counterparty andthe company must ensure that the financialinstitution is financially sound in reducing risk. Todetermine the financial soundness andcreditworthiness of the investment managers withwhich the company does business, a credit modelof the counterparty concerned must be crafted INTEREST RATE RISK MANAGEMENT POLICY Interest rate risk shall be managed using suitablehedging instruments such as financial derivatives,taking due cognisance of interest exposure andcorresponding liquidity risk. The decision whetherto use fixed and/or floating interest rates shall bedetermined by the duly authorized official havingregard to the sensitivity and term of the underlyingassets and liabilities and nature of the interestrate environment. This is what you find in the company’s treasury department: Mr Sibusiso Bengu, the most experienced personnel at the Roodepoort branch, who have 10 years good relationship withStandard bank manager has the responsibilities to ensure that every time the Standard bank branch account reaches R450000, the amount by which the account exceeds R200 000 (that is R250 000) is transferred to the head office account. REQUIRED: After reviewing and analysing the case study of Dalton Ltd thoroughly, answer questions 12 to 19. QUESTION 12 The treasurer must develop a cash flow statement to determine how much Dalton Ltd need each day to fund the businessoperations. a. True b. False True False Question 13 Not yet answered Marked out of 1.00 Question 14 Not yet answered Marked out of 1.00 Question 15 Not yet answered Marked out of 1.00 QUESTION 13 The ability for Daltons to replace its defected injection moulding can be referred/defined as liquidity. a. True B. False True False QUESTION 14 A depreciation of R600 000 (R3 000 000/5) that will be written off by Dalton at the end of the following financial year afterreplacing the injection moulding will be part of expenses and will be treated as a cash outflow. a. True b. False NB. Ignore capital budgeting process depreciation calculations. True False QUESTION 15 The forecasts of Dalton Ltd cash flow indicate that there will be a cash deficit of R898 100 in April, May and June 2025. Infinancing this shortage, the company will issue a 90-day banker’s acceptance bill which its bank will guarantee by accepting itand the bill will then be discounted in the market with the relevant discount rate. The company will receive R970 100 in anexchange for the bill which will require that the company pays the nominal amount of R1 000 000 in 90-days’ time. The cost of the bankers’ acceptance for the company (which is a yield to the bank) is …. a. 4,76% b. 5.73% c. 6.11% d. 7.6% a. 4,76% b. 5.73% c. 6.11% d. 7.6% Clear my choice Question 16 Not yet answered Marked out of 1.00 Question 17 Not yet answered Marked out of 1.00 QUESTION 16 It is expected that the short-term interest will rise, and you wish to hedge the next roll over of the bankers’ acceptance billwith a forward rate agreement (FRA). Assume the following applies: Roll-over :20 April Spot rate on 20 April :14.5% FRA spot (Bid/offer) :10.0/11.0% The cost to the company of the roll-over will equal to …. a. R8 630 b. R28 027 c. R36 657 d. R 44 121 a. a. R8 630 b. a. R28 027 c. a. R36 657 d. a. R 44 121 Clear my choice QUESTION 17 Some of the tasks that you are required to perform by the company as the treasurer are not the key performance area for acorporate treasurer. False True True False Question 18 Not yet answered Marked out of 1.00 Question 19 Not yet answered Marked out of 1.00 QUESTION 18 Which one of the following types of risk is accepted by Dalton Ltd? a. Liquidity risk b. Interest rate risk c. Credit risk d. Foreign exchange risk a. Liquidity risk b. Interest rate risk c. Credit risk d. Foreign exchange risk Clear my choice QUESTION 19 It sounds like the newly appointed treasurer read, understand the company policies and complies with it in his dailyoperations a. False b. True True False Question 20 Not yet answered Marked out of 1.00 Question 21 Not yet answered Marked out of 1.00 QUESTION 20 The interest payable if the business (Dalton) uses 20% of the revolving credit limit for 28 days and that the interest iscalculated on daily basis, is equal to … . a. R449.13 b. R760.41 c. R870.30 d. R980.31 a. R449.13 b. R760.41 c. R870.30 d. R980.31 Clear my choice QUESTION 21 Which one of the following sweeping strategies is used at Dalton Ltd? a. Percentage sweeping method b. Fixed amount sweeping method c. Threshold sweeping method d. Range-based sweeping method. a. Percentage sweeping method b. Fixed amount sweeping method c. Threshold sweeping method d. Range-based sweeping method. Clear my choice Question 22 Not yet answered Marked out of 1.00 Question 23 Not yet answered Marked out of 1.00 QUESTION 22 Mr Sibusiso Bengu informs you that in the past few years, the company experienced numerous challenges with Standardbank and that the bank’s poor services are impacting negatively on the operations of Dalton Ltd. He requests you as acompany treasurer to give him authority to open a new bank account with ABSA bank for the Roodepoort branch. Which one of the following statements is correct? a. Mr Bengu has 10 years’ experience; he established a good relationship with banks previously and he knows preciselywhat he is doing. Yes, you authorise him to open a new bank account.(False) b. No, you do not authorise him to open the new bank account with ABSA. (True) True False QUESTION 23 Upon reviewing the operational processes and procedures at Dalton Ltd, what type of risks do you expect to see beingcovered in the company’s policy documents? a. Liquidity risk policy, dealing policy, credit risk policy, commodity risk policy, foreign exchange rate policy. b. Interest rate risk policy, credit risk policy, foreign exchange rate policy, liquidity risk policy. c. Commodity risk policy, Inter-company funding policy, interest rate risk policy, ring-fencing policy. d. foreign exchange rate risk policy, ring-fencing policy, intercompany funding policy, commodity risk policy. a. Liquidity risk policy, dealing policy, credit risk policy, commodity risk policy, foreign exchange rate polic b. Interest rate risk policy, credit risk policy, foreign exchange rate policy, liquidity risk policy. c. Commodity risk policy, Inter-company funding policy, interest rate risk policy, ring-fencing policy. d. foreign exchange rate risk policy, ring-fencing policy, intercompany funding policy, commodity risk policy. Clear my choice Question 24 Not yet answered Marked out of 1.00 QUESTION 24 Which of the following statements are correct? a. Future contracts are traded on a formal exchange. b. Forward contracts are traded over the exchange. c. Forward contracts are not traded over-the-counter. d. Forward contracts are traded over-the-counter. 1. A and B 2. A and C 3. B and C 4. A and D a. Future contracts are traded on a formal exchange. b. Forward contracts are traded over the exchange. c. Forward contracts are not traded over-the-counter. d. Forward contracts are traded over-the-counter Clear my choice Question 25 Not yet answered Marked out of 1.00 QUESTION 25 Match column A with column B below: COLUMN A COLUMN B 1 Front office a Produces plans to achieve targets 2 Middle office b Settles deals (transactions) once authorisation has beendone. 3 Back office c Books and executes trades. d Enforces and reviews risk limits. e Leads the treasury department. The correct option/match is … a, 1. c; 2. d; 3.b b, 1. d; 2. a; 3.c c, 1. e; 2. b; 3 e d, 1. d; 2. e; 3.a a. a, 1. c; 2. d; 3.b b. b, 1. d; 2. a; 3.c c. c, 1. e; 2. b; 3 e d. d, 1. d; 2. e; 3.a