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

In notional pooling, interest is calculated on the combined net balance of all participating accounts without physically transferring funds between accounts.

Question 2

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

Accepted Answer

Net cash position

Answer

Net cash position — the difference between available cash and immediate obligations — is the primary daily metric for monitoring a company's liquidity risk.

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

A DSO above the industry average indicates slow collection of receivables; improving credit terms and collections processes can shorten DSO and improve liquidity.

Question 4

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

Accepted Answer

U.S. Treasury bills (T-bills)

Answer

U.S. Treasury bills are considered the most liquid short-term investment due to their active secondary market, government backing, and short maturities.

Question 5

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

Accepted Answer

Implementing electronic invoicing and lockbox services

Answer

Electronic invoicing speeds up the billing cycle while lockbox services reduce mail and processing float, both accelerating the receipt of customer payments.

AFP - Association for Financial Professionals Practice Test

AFP - Association for Financial Professionals Practice Test

AFP Liquidity Management 2