CGFO Treasury

  1. What is Florida Statues Chapter 218 cover?
    Part IV Investment of Local Government Surplus Funds (all)
  2. What is FS 218.415? What is required?
    Local government investment policies.

    • Written Plan
    • Scope
    • Investment objectives
  3. FS 218.415 Investment Policies should have a written policy as to the authorized investments; what are authorized investments?
    • SEC registered Money Markter Funds - AAA rated
    • Authorized Investment Pools - SBA (State Board Adm.)
    • CDs or Savings Accounts from QPDs
    • Direct Obligations of the US Treasury
    • Federal Agencies & Instrumentalities
    • Israel Bonds
    • Registered Investment Company or Trust
    • Other
  4. What are QPDs?
    Qualified Public Depositors is a list of approved depositors.
  5. FS 218.415 Investments Policies if you have no written policy what are the authorized investments allowed?
    • Authorized Investment Pools - SBA (State Board Adm.)
    • SEC Registers Money Market Funds - AAA rated
    • CDs or Savings Accounts from QPDs
    • Direct Obligations of the US Treasury
  6. What is GASB Statement 40 cover?
    Addresses comon deposit & investment risks disclosures related to credit risk (FICCC).
  7. What is GASB Statement 31?
    Accounting & Financial Reporting for Certain Investments & for External Investment Pools.
  8. What is FS 218.407?
    Local government investment authority.

    Authorizes units of governmnet to deposit in the Trust fund.

    Establishes procedures for accounts and deposits
  9. What is FS 218.403?
    • Definitions:
    • CFO
    • Current expenses
    • Governing body
    • Short Term
    • Surplus funds
    • Trust fund
    • Unit of local government
  10. Name Investment Program Components
    • setting investment objectives
    • identifying & managing
    • investment assets
    • staffing
    • investment policy
    • developing cash flow
    • performing broker-dealer due diligence
    • implementing internal controls
    • selecting & purchasing investments
    • recording & accounting for investments
    • monitoring the portfolio
    • evaluating & reporting results
  11. What is an Investment Policy?
    A concise & clear statement of the objectives & parameters formulated by an investor or investment manager for a portfolio of investment securities.
  12. Investment Policy Scope should have what?
    • PEAA
    • P - Pooling of Funds
    • E - Exclusions
    • A - Applicability
    • A - Arbitrage
  13. Investment Policy objectives in priority order are?
    • SLY
    • S - Safety - Credit & interest rate risks
    • L - Liquidity - Static & Dynamic
    • Y - Yield

    Local considerations
  14. What is standard of care?
    • Prudence "Prudent Person"
    • Ethics & conflict of interest
    • Delegation of authority
  15. What is Credit Risk/Default Risk? How is this prevented?
    • Risk of Loss due to failure of an issuer or backer.
    • Diversification
  16. Name 5 types of risk?
    • FICCC
    • Foreign currency risk
    • Interest rate risk
    • Credit risk
    • Custodial credit risk
    • Concentration of credit risk
  17. What is Rule of 5?
    If invested in more than 5% must disclosure.
  18. What is Passive management strategy?
    Very safe
  19. What is Horizon Investing?
    Horizon investing is the investing the money in instruments that mature.
  20. What is rolling t-bills?
    Systematic & regular purchase of t-bills that matures & buy another one.
  21. What is managed assets?
    Money markets & SBA
  22. What is laddering maturities?
    Buying when you need money.
  23. What is active management strategy?
    Increase the porfolio by exceeding market average rate of return.

    • Marketing timing
    • money market arbitrage
    • downgrade investment quality
    • SWAPS
    • Yield curve analysis
  24. What are Static & Dynamic Liquidity?
    Static - Hold to maturity - Passive

    Dynamic - Securities have active secondary market - Active
  25. What are variables of duration?
    • Term to maturity
    • Coupon rate
    • Yield to maturity
    • Measured in years
    • Measure of the timing of cash flow
  26. What is interest/market risk?
    Risk that market value will fall due to changes in market interest rates.
  27. Risk of QPD?
    QPD can be bought out by another bank

    • FS 280
    • Banks fail - notify treasury & fill out claim within 30 days . If you don't fill annually reports you won't get your money
  28. Safekeeping & Custody of instruments are?
    • Authorized Financial Dealers & Institutions (QDPs)
    • Delivery vs payment ensures securities are deposited in an eligible financial institution prior to release of funds- 3rd party custodian.
    • Safekeeping
    • Internal controls -control of collusion, separation of duties, custodial safekeeping, avoidance of physical delvier securities, clear delegatyion of authority, written confirmation of tranactions.
  29. What are investment parameters?
    Diversification - limit investment sto avoid overconcentration in securitys from a specific issuer or business sector (excluding US Treasury securities)

    Maximum Maturities - attempt to match its investments with anticipated cash flow requirements. Will not directly invest in securities maturing more than 5 years from date of purchase - following state & local guidelines. (disclosure is required).
  30. What are the Reporting Standards?
    • Methods - prepare an investment report at least quarterly, including a management summary that provdies an analysis of the status of the current investment portfolio & transactions made over the last quarter.
    • Listing individual securities
    • Realized & unrealized gains
    • Average weighted yield to maturity comparted to applicable benchmarks.

    Performance Standards
  31. Explain reporting requirements.
    • Method
    • Performance Standards
    • Marking to Market
  32. What is Reporting Performance Standards?
    Investment portfolio will be managed in accordance with the parameters specified within the investment policy. Portfolio should obtain a market average rate of return during a market/economic environment of stable interest rates. Appropriated benchmarks shall be established for performance on a regular basis.
  33. When reporting an investment policy what is Marking to Market?
    Market value of the portfolio shall be calculated at least quarterly and a statement of market value of the portfolio shall be issued at quarterly.

    This will ensure that the review of the investment portfolio, in terms of value & price volatility, has been performed consistent with the GFOA Recommended Practices.
  34. Investment reporting includes?
    • Portfolio returns
    • 1. Effective rate of return
    • 2. Risk adjusted return
    • 3. Total Return

    • Investment returns
    • Coupon yield, current yield, discount yield, horizon yield, option adjusted yield, yield to maturity, yield to call
  35. Per GASB 31 how are investments reported?
    Report investments at FAIR VALUE on the Balance Sheet

    Report all investment income, including changes in FV, as revenue on the operating statement.
  36. Per GASB 31 reporting why is it important to benchmark?
    A passive portfolio that represents the expected returns & expected risks that corresponds to the investment objectives.

    • Maturity structure
    • Investment quality
    • Market exposure
  37. Investment Types US Treasury:
    • T-bills discounts mature on Thursdays less than 1 year.
    • T-notes coupons sold at par, above or below
  38. Chapter 218 what are the 3 parts
    • DAP
    • 218.403 Definitions
    • 218.407 Local govt investment authority
    • 218.415 Local govt investment policies
  39. What are investment types?
    Investment types is a list of authorized investments.

    GFOA recommends full collateralization of Bank Accounts. FL Statutes allow for QPD.
  40. What is covariance?
    Covariance is a measure of the degree to which returns on 2 securities move in tandem.

    • Positive - returns move together
    • Negative - returns vary inversely
  41. What did the Federal Reserve Act of 1913 do?
    Establishment of federal reserve banks, to furnish an elastic currency.
  42. Who are the Board of Governors of the Federal Reserve System?
    • 7 members
    • Nominated by the President
    • Confirmed by the Senate
    • 14 year terms
  43. What makes up the Federal Open Market Committee?
    • 12 members
    • 7 members of Board of Governors
    • Pres. of the NY Federal Reserve Bank
    • 4 rotating members from the remaining 11 Fed. Res. Banks each serving a one-year term
  44. What does the Fedral Open Market Committee do?
    Foster the long-run objectives of price stability and sustainable economic growth through monetary policy.

    • Bank Reserve Requirements
    • Discount Rate - rate on loans by fed res. banks to member banks.
    • Open Market Operations - Buy & Sell US Treasuries
  45. US Treasury Bills
    • Issued at discount
    • Mature less than 1 yr.
    • Interest paid at maturity
    • Credit/Default risk free
    • Highly liquid
    • Issued and Mature on Thursday
    • Carry lowest rates of return, normally
    • Backed by full faith & credit of the US Govt.
  46. US Notes & Bonds
    • Coupon Bearing
    • Mature 2 - 30 yrs
    • Interest paid semi-annually
    • Credit risk free
    • Very liquid
    • Carry incrementally higher rates of return than T-Bills, normally
    • Backed by full faith & credit fo the US Govt.
  47. Can Florida negotiate CD's as an investment?
  48. What is Strike price?
    Is the stated price for which the derivative may be purchased (embedded call).
  49. What type of risk does Credit Ratings address?
    Only Credit Risk
  50. What is duration?
    Measure the timing of cash flows from a fixed-income security and useful indicator of price volatiltiy.

    Measured in years.
  51. More duration does what to risk?
  52. Why forecast cash flow?
    To identify the amount and timing of surplus funds available for investment.
  53. Credit cards do what to the operating cycle?
    Speed up collections and increases collection float.
  54. How do you increase float?
    Bring in money quicker and make payments out slower.
  55. What is average daily balance?
    This is used in calculating bank fees and overnight earnings.
  56. What is compensating balance?
    The excess balance available to indirectly pay bank service charges.
  57. What is a cash concentration account?
    An account whose funds are periodically transferred to zero-balance accounts to pay obligations.
  58. What is a Zero-Balance Account?
    Generally carry the funds to cover outstanding checks and a reconciled zero-dollar balance. A/P P/R.
  59. What is banking sweep method mean?
    Transfer excess balances from a deposit account to an investment account - usually overnight.
  60. What is positive pay?
    File to bank and they match and pay.
  61. What is reverse positive pay?
    Call Govt up and ask to pay checks. Prevents fraud.
  62. What is remote deposit capture?
    Scan and deposit copy of check
  63. What are Federal Agencies?
    • Small Bus. Adm.
    • Export/Import Bank
    • GNMA
    • higher interest than Treasuries
    • full faith & credit of US Govt
    • L-T
    • Subject to liquidity & market risks
  64. What Federal Instrumentalities?
    • Fed Farm Cr. Bank
    • Fed Home Loan Bank
    • Freddie Mac
    • Fannie Mae
    • Govt sponsored enterprised
    • Establish to implement fed. lending programs
    • Implied backing of Fed Govt.
    • Higher interest rates & risk than Treasuries
    • S-T & L-T instruments
  65. What should internal control do?
    Should be designed to prevent losses of funds which might arise from fraud, employee error, misrepresentation by 3rd parties, or imprudent actions by employees of the unit of local govt.
  66. What is an odd lot?
    Less than 100 shares of stock pooled together & sold.
  67. What is put & call options?
    • Put option to sell
    • Call option to buy
  68. What is zero-coupon securities?
    There is no interest stated on the security purchased at a discount. Interest is paid at maturity.

  69. What examples of Electronic Benefits Transfer?
    E-payables & Food Stamps
  70. What is Jensen Index?
    In finance, Jensen's alpha (or Jensen's Performance Index, ex-post alpha) is used to determine the abnormal return of a security or portfolio of securities over the theoretical expected return.

    Jensen's alpha was first used as a measure in the evaluation of mutual fund managers by Michael Jensen in 1968. The CAPM return is supposed to be 'risk adjusted', which means it takes account of the relative riskiness of the asset. After all, riskier assets will have higher expected returns than less risky assets. If an asset's return is even higher than the risk adjusted return, that asset is said to have "positive alpha" or "abnormal returns". Investors are constantly seeking investments that have higher alpha. In the context of CAPM, calculating alpha requires the following inputs: the realized return (on the portfolio),the market return,the risk-free rate of return, andthe beta of the portfolio.
  71. What is Master Repurchase Agreement?
    The investment policy shall require all approved institutions and dealers transacting repurchase agreements to execute and perform as stated in the agreement.
  72. What is a Unit of Local Government?
    Any Govt entity within the state not part of the state govt. and shall include, but not be limited to, the following and the officers thereof: any county, municipality, school district, special district, clerk of the circuit court, sheriff, property appraiser, tax collector, supervisor of elections, authority, board, public corporations, or any other political subdivision of the state.
  73. What is a yield curve?
    The relation between the interest rate and the time to maturity.

    Yield is the overall rate of return available on the investment.
  74. The possibility that a govt will not be able to recover its deposits, investments or collateral from the bank or other party is known as?
    What is custodial credit risk?
  75. These investment instruments are not exposed to custodial risk and do not have to be included in disclosure. What are these instruments?
    Mutual funds and external investment pool.
  76. What type of risk is the chance that an issuer of an investment will not fufill its obligation?
    Overall credit risk.
  77. What could affect a government's ability to pay its bills or repay its long-term debt?
    Loss of investment value or income.
  78. What type of risk is the possibility that changes in interest rates will reduce the fair value of a government's investment?
    Interest rate risk
  79. These are set for comparison purposes against standard marks such as s-t treasury rates.
    Yield benchmarks
  80. Provides standards for not disclosure about a govt's deposits and investments.
    GASB Stmt 40
  81. The chance that changes in exchange rates will adversely affect the fair value of govt's investments and deposits is?
    Foriegn currency risk.
  82. Govts will report their ________ by disclosing, by amount & issuer, investments in any single issuer that represents more that 5% of the total investment in the column they are reported in.
    Concentration of credit risk
  83. One of the first steps in establishing internal controls for investment function is?
    Preparing, maintaining and using well written investment procedures.
  84. Checks & Balances include
    Prevention & detection controls
  85. What is primary market?
    Involves the sale/purchase of newly issued securities by investment bankers to investors.
  86. Fannie Mae is an example of what type investment?
    US Agency Obligation
  87. Sales of securities with a simultaneous agreemnt to buy them again on a agreed upon date in the future are what?
  88. Backed by the full faith & credit of the US Govt.
    US Treasury Obligations
  89. Short-term obligations of the Fed Govt?
    Treasury Bills
  90. Measure of how easily an investment security can be turned into cash is what?
  91. How can a government reduce collections float?
    • Over the counter collections - banks can accept pymts for govts.
    • Account consolidation -
    • Concentration accounts
  92. Type of collection which allows the public to make payments after office hours is?
    Night deposit
  93. Which type of collections method is most expensive for govts?
    Wire Transfers
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CGFO Treasury
CGFO Treasury Investment Policy & Regulations