CCM Cash Forecasting and Liquidity Management 3

Question 1

A company establishes a minimum liquidity buffer equal to 30 days of operating expenses. If monthly operating expenses are $3 million, what is the required liquidity buffer?

Accepted Answer

$3,000,000

Answer

30 days equals one month of expenses, so the liquidity buffer = $3,000,000 (one month of operating expenses).

Question 2

Which type of credit facility provides the most reliable committed access to liquidity for a corporation during a market stress event?

Accepted Answer

Revolving credit facility

Answer

A revolving credit facility is a committed facility, meaning the bank is legally obligated to lend up to the agreed amount, providing reliable liquidity even during market stress.

Question 3

When a firm pools subsidiary cash balances into a central account to optimize overall liquidity, this is called:

Accepted Answer

Cash concentration or pooling

Answer

Cash concentration (or pooling) aggregates subsidiary balances into a central account, allowing the company to manage net liquidity rather than individual entity balances.

Question 4

A cash manager uses variance analysis to compare actual cash flows to forecasted cash flows. The primary purpose of this analysis is to:

Accepted Answer

Identify forecast errors and improve future forecasting accuracy

Answer

Variance analysis on cash forecasts identifies where projections deviated from actuals, enabling the treasurer to refine assumptions and improve future forecast quality.

Question 5

Which of the following actions directly shortens a company's cash conversion cycle?

Accepted Answer

Negotiating longer payment terms with suppliers

Answer

Negotiating longer payment terms with suppliers increases DPO, which directly reduces the cash conversion cycle (CCC = DSO + DIO - DPO).

(CCM) Certified Cash Manager Practice Test

(CCM) Certified Cash Manager Practice Test

CCM Cash Forecasting and Liquidity Management 3