AFP Liquidity Management 2

Question 1

In a notional pooling arrangement, which of the following is true?

Accepted Answer

Interest is calculated on the net position of all accounts without physically moving funds

Answer

Physical funds are swept into a single account

Answer

Each subsidiary account earns interest independently

Answer

Surplus cash is automatically invested in money market funds

Question 2

Which metric is most commonly used by treasury professionals to monitor daily liquidity risk?

Accepted Answer

Net cash position

Answer

Earnings per share (EPS)

Answer

Price-to-earnings ratio

Answer

Debt-to-equity ratio

Question 3

A company with a Days Sales Outstanding (DSO) of 65 days and industry average of 45 days should:

Accepted Answer

Review its credit and collections policies to speed up receivables

Answer

Accelerate its payment terms to suppliers

Answer

Increase inventory levels to support sales

Answer

Issue long-term debt to fund the shortfall

Question 4

Which of the following short-term investment instruments is considered the most liquid?

Accepted Answer

U.S. Treasury bills (T-bills)

Answer

10-year Treasury bonds

Answer

Corporate bonds rated BB

Answer

Real estate investment trusts (REITs)

Question 5

Accelerating cash inflows is best achieved by which of the following techniques?

Accepted Answer

Implementing electronic invoicing and lockbox services

Answer

Extending supplier payment terms

Answer

Increasing inventory safety stock

Answer

Issuing commercial paper

Question 6

The primary purpose of maintaining a liquidity buffer is to:

Accepted Answer

Protect against unexpected cash shortfalls without disrupting operations

Answer

Maximize return on invested assets

Answer

Reduce the company's effective tax rate

Answer

Signal financial strength to equity investors

Question 7

Which of the following best describes 'zero-balance accounts' (ZBAs)?

Accepted Answer

Subsidiary accounts that automatically zero out by transferring funds to or from a master account

Answer

Accounts that earn zero interest regardless of balance

Answer

Accounts with no overdraft protection

Answer

Investment accounts limited to government securities