AFP Liquidity Management 3

Question 1

Under Basel III liquidity regulations, the Liquidity Coverage Ratio (LCR) requires banks to:

Accepted Answer

Hold enough high-quality liquid assets to survive a 30-day stress scenario

Answer

Maintain a minimum current ratio of 2.0 at all times

Answer

Limit short-term borrowings to 10% of total liabilities

Answer

Hold cash reserves equal to 25% of total deposits

Question 2

A company's operating cash flow is $5 million, capital expenditures are $2 million, and total debt is $20 million. What is its free cash flow?

Accepted Answer

$3 million

Answer

$7 million

Answer

$25 million

Answer

$15 million

Question 3

Which of the following is an advantage of a committed revolving credit facility over an uncommitted line of credit?

Accepted Answer

The bank is legally obligated to fund draws as long as conditions are met

Answer

Committed facilities charge no fees even when undrawn

Answer

Committed facilities typically carry lower interest rates than bonds

Answer

Uncommitted lines offer greater flexibility in repayment terms

Question 4

In a stress scenario, which liquidity management action should a treasurer prioritize first?

Accepted Answer

Drawing on committed credit facilities before they are potentially frozen

Answer

Repurchasing outstanding equity shares

Answer

Increasing dividend payments to reassure investors

Answer

Accelerating capital expenditure projects

Question 5

Which of the following best describes 'supply chain finance' as a liquidity tool?

Accepted Answer

A program where a buyer's bank pays suppliers early, while the buyer repays on extended terms

Answer

A bank guarantee used to secure international trade shipments

Answer

An arrangement to factor receivables at a discount for immediate cash

Answer

A revolving facility backed by inventory as collateral

Question 6

The Net Stable Funding Ratio (NSFR), a Basel III metric, is designed to:

Accepted Answer

Ensure stable funding sources cover illiquid assets over a one-year horizon

Answer

Measure daily cash inflows versus outflows over 30 days

Answer

Limit interbank overnight borrowing to 5% of total assets

Answer

Set minimum capital requirements for trading book exposures

Question 7

When evaluating a company's liquidity position, which of the following scenarios signals the greatest liquidity risk?

Accepted Answer

Negative operating cash flow combined with a large revolving credit facility that is fully drawn

Answer

High current ratio with strong operating cash flow

Answer

Moderate current ratio with diversified short-term investments

Answer

High DSO offset by a very low DPO