Cash Management Fundamentals 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 Management Fundamentals flashcards as text
Which of the following correctly describes 'physical cash pooling' (also called cash concentration)?
Answer: Actual cash is physically swept into a central master account
Physical pooling (cash concentration) involves actual fund transfers from subsidiary accounts into a central master account, consolidating real cash in one location.
A treasury analyst observes that the company's float days have increased from 2.5 to 4 days. What is the most likely impact on working capital?
Answer: Working capital deteriorates because cash is tied up longer before becoming available
Longer float days mean collected funds are unavailable for a greater number of days, effectively tying up working capital and increasing the need for external liquidity.
Under CHIPS (Clearing House Interbank Payments System), how are payment obligations primarily settled?
Answer: Multilateral netting throughout the day with final net settlement
CHIPS uses continuous bilateral and multilateral netting algorithms throughout the day, settling final net positions across participants in a single end-of-day settlement.
A company evaluating a banker's acceptance (BA) as a short-term investment should be aware that its yield is quoted on a:
Answer: Discount basis (360-day year)
Banker's acceptances, like Treasury bills and commercial paper, are quoted on a bank discount basis using a 360-day year, so their true yields are slightly higher than quoted.
Which scenario would most likely cause a company to adopt an accelerated collection strategy?
Answer: High DSO relative to industry peers and tight credit lines
When DSO is high relative to peers and credit is constrained, accelerating collections is the most direct lever to free trapped working capital and reduce external borrowing needs.
In a notional pooling arrangement, which statement is most accurate?
Answer: Balances in separate accounts are combined mathematically for interest purposes without moving cash
Notional pooling aggregates account balances on paper to calculate a net interest position, while each entity's cash remains in its own account without physical movement.
A company's short-term investment policy states that all instruments must have an investment-grade rating. Which minimum Moody's rating satisfies this requirement for commercial paper?
Answer: P-3
For commercial paper, Moody's uses its Prime rating scale; P-3 (Prime-3) is the lowest investment-grade tier, while Ba ratings apply to long-term bonds and are non-investment grade.