CCA Treasury & Cash Management Flashcards

What is an interest rate swap, and how does it help a corporate borrower?

Answer: An agreement where two parties exchange fixed-rate and floating-rate interest payments to manage interest rate exposure

In an interest rate swap, one party pays a fixed rate while receiving a floating rate (or vice versa), allowing companies to convert variable-rate debt to fixed-rate or hedge exposure to rate changes.

A company's accounts payable days is 45 and its industry average is 30 days. What might this indicate?

Answer: The company is taking longer to pay suppliers than peers, which may indicate cash flow stress or aggressive working capital management

Higher payable days than industry average can signal either deliberate working capital optimization (stretching payables) or cash flow difficulties preventing timely supplier payments.

What is the primary advantage of issuing commercial paper versus drawing on a bank credit line?

Answer: Commercial paper typically carries a lower interest rate than bank credit lines for creditworthy large corporations

Large, creditworthy companies can issue commercial paper (unsecured short-term notes) at rates below bank prime, reducing borrowing costs compared to drawing on a revolving credit facility.

What is netting in the context of multinational corporate treasury?

Answer: Offsetting intercompany receivables and payables across subsidiaries to minimize the number and volume of cross-border fund transfers

Multilateral netting consolidates intercompany payables and receivables among subsidiaries, settling only the net position and reducing foreign exchange transaction costs and banking fees.

Which of the following best describes the treasury function's role in capital structure management?

Answer: Managing the mix of debt and equity financing, issuing securities, and maintaining relationships with banks and capital markets

Treasury manages capital structure by determining optimal debt-equity mix, executing bond or equity issuances, managing banking relationships, and monitoring credit ratings.

What is a money market fund, and why do corporate treasurers use them?

Answer: A pooled investment vehicle investing in short-term, high-quality debt instruments, used by treasurers to earn a return on excess cash while maintaining liquidity

Money market funds invest in T-bills, commercial paper, and other high-quality short-term instruments, providing corporates with a liquid, low-risk vehicle for short-term cash that earns more than a bank account.