AAT L4 Cash & Treasury Management

Question 1

The primary objective of treasury management is to:

Accepted Answer

Manage the organisation's liquidity, funding, and financial risk to ensure it can meet obligations and optimise financial performance

Answer

Treasury management encompasses: maintaining adequate liquidity (cash and facilities), managing funding (short and long-term), controlling financial risks (interest rate, foreign exchange, credit), and optimising returns on surplus cash.

Question 2

Working capital is defined as:

Accepted Answer

Current assets minus current liabilities

Answer

Working capital = current assets − current liabilities. It represents the net short-term resources available for day-to-day operations; positive working capital means current assets exceed current liabilities.

Question 3

The cash operating cycle (cash conversion cycle) is calculated as:

Accepted Answer

Inventory days + receivables days − payables days

Answer

Cash operating cycle = inventory days + receivables days − payables days. It measures the time between paying for inputs and receiving cash from customers — a longer cycle means more working capital is tied up.

Question 4

An organisation with a very short cash conversion cycle compared to industry peers would typically:

Accepted Answer

Require less working capital financing and be more efficient

Answer

A short cash conversion cycle means cash is recovered quickly from the operating cycle — less working capital is tied up, reducing the need for external financing. This is generally a positive indicator of operational efficiency.

Question 5

Which of the following is a short-term source of finance for a business's working capital?

Accepted Answer

Bank overdraft facility

Answer

A bank overdraft is a flexible, short-term borrowing facility used to fund day-to-day working capital needs. It is repayable on demand and suitable for temporary cash shortfalls rather than permanent financing.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Cash & Treasury Management