CCA Treasury & Cash Management Flashcards

What is a revolving credit facility, and how is it used in corporate treasury?

Answer: A committed credit line that a company can draw on, repay, and reborrow multiple times up to a maximum limit

A revolving credit facility provides flexible short-to-medium-term borrowing; companies draw down when cash is needed and repay when surplus cash is available, making it ideal for managing working capital fluctuations.

What is the purpose of a hedging strategy in corporate treasury?

Answer: To reduce or eliminate exposure to financial risks such as foreign exchange, interest rate, or commodity price fluctuations

Corporate hedging uses financial instruments (forwards, futures, options, swaps) to offset or reduce exposure to adverse price movements in currencies, interest rates, or commodities.

Which financial instrument locks in an exchange rate for a future transaction, obligating both parties to exchange currencies at a specified rate and date?

Answer: Foreign exchange forward contract

A foreign exchange forward contract obligates both buyer and seller to exchange currencies at a predetermined rate on a future settlement date, eliminating exchange rate uncertainty.

What is a 'sweep account' used for in cash management?

Answer: Automatically moving excess balances from operating accounts into interest-bearing investments at end of day

Sweep accounts automatically transfer funds above a target balance into higher-yielding instruments (money market funds, overnight repos) each day, maximizing interest income on idle cash.

What is Days Sales Outstanding (DSO), and what does a rising DSO signal?

Answer: The average number of days to collect receivables after a sale; rising DSO may signal collection problems or looser credit terms

DSO = (Accounts Receivable ÷ Net Credit Sales) × Days; a rising DSO means the company is taking longer to collect cash from customers, which can stress liquidity.

What is the purpose of a 13-week cash flow forecast in corporate treasury?

Answer: To provide a near-term visibility tool for weekly cash inflows and outflows, enabling proactive liquidity management

The 13-week cash flow forecast is a rolling short-term liquidity tool that helps treasury identify potential cash shortfalls or surpluses with enough lead time to take corrective action.