Certified Treasury Professional Practice Exam 2025 – All-in-One Guide to Exam Success!

When a treasury professional observes a shift in the yield curve from downward sloping to upward sloping, it indicates a change in interest rates, typically signaling that the market expects higher rates in the future. In this scenario, using interest rate collars becomes a pertinent strategy since collars can provide protection against rising interest rates while allowing for some benefits if rates stay the same or decline.

Interest rate collars involve setting a cap (maximum) and a floor (minimum) on the interest rates linked to floating rate debt. This means that if rates rise above a certain level, the treasurer’s interest payments will not exceed the cap, providing a safeguard against increasing costs. Conversely, if interest rates drop, the company can still benefit from lower rates, as long as they remain above the floor.

In a situation where the yield curve is expected to rise, this strategy serves to mitigate the financial risks associated with fluctuating interest rates while maintaining some flexibility. The use of a collar can help manage cash flow and ensure predictability in interest expenses, which is critical for effective treasury management.

Implementing a commercial paper program or a short-term borrowing facility may provide liquidity but would not specifically address the potential future rate increases. A variable rate long-term facility could lead to increased costs if