Cash Forecasting and Liquidity Management Flashcards
7 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cash Forecasting and Liquidity Management flashcards as text
Which technique spreads cash inflows and outflows across multiple scenarios to test how liquidity holds up under different assumptions?
Answer: Scenario analysis
Scenario analysis evaluates cash positions under multiple defined circumstances (e.g., best case, base case, worst case) to assess liquidity resilience.
A company uses a target cash balance model. If the optimal cash balance is $2 million and the current balance is $500,000, the treasurer should:
Answer: Borrow or liquidate investments to raise cash to the target
When the current cash balance falls below the optimal target, the treasurer should borrow or liquidate investments to bring the balance back to the target level.
The Baumol model for optimal cash balance assumes which of the following?
Answer: Cash is used at a steady, predictable rate
The Baumol model assumes cash is used at a constant rate, making it analogous to an economic order quantity model applied to cash management.
In the Miller-Orr cash management model, what triggers a decision to invest excess cash in short-term securities?
Answer: Cash balance rises to the upper control limit
In the Miller-Orr model, the firm invests excess cash when the balance hits the upper control limit, reducing it back to the return point.
Which of the following is a primary external factor that a cash manager must incorporate into a long-term liquidity forecast?
Answer: Macroeconomic indicators such as interest rate trends
Macroeconomic indicators like interest rate trends affect borrowing costs, investment yields, and customer payment behavior, all critical to long-term liquidity planning.
A company has a days sales outstanding (DSO) of 55 days and days payable outstanding (DPO) of 30 days, with days inventory outstanding (DIO) of 25 days. What is the cash conversion cycle?
Answer: 50 days
CCC = DSO + DIO - DPO = 55 + 25 - 30 = 50 days.
Which cash forecasting horizon is typically used for strategic planning purposes such as capital expenditure decisions?
Answer: Long-term forecast (1-5 years)
Long-term forecasts spanning one to five years are used for strategic decisions like capital expenditures, major borrowings, and business expansion planning.