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AGA GFMC Exam - Topic 3 Question 4 Discussion
Topic #: 3
The Federal Credit Reform Act of 1990 prescribes a special budget treatment for direct loans and loan guarantees
that measures cash flows to and from the government using which financial analytical technique?
Federal Credit Reform Act of 1990: This Act established a new accounting framework for federal credit programs, such as direct loans and loan guarantees. It requires using the net present value (NPV) method to measure the costs of loans and guarantees by discounting future cash flows (e.g., loan repayments, defaults) to their present value.
Explanation of Financial Analytical Technique:
Net Present Value (NPV): Accounts for the time value of money by discounting future cash flows to the present. It provides an accurate measure of the economic cost to the government.
Other options:
A . Future value: Focuses on future cash flows, not their present cost.
C . Current value: Not a recognized technique for analyzing long-term cash flows.
D . Regression analysis: A statistical method, unrelated to calculating loan program costs.
Federal Credit Reform Act of 1990, Section 502.
Congressional Budget Office (CBO), Federal Credit Program Cost Analysis.
Office of Management and Budget (OMB), Circular A-11: Credit Reform Accounting.
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