CCM Cash Management Fundamentals 2 — Questions and Answers
Question 1: Which disbursement method allows a company to maximize float by issuing checks drawn on a distant bank?
- Zero-balance account
- Remote disbursement (Correct answer)
- Controlled disbursement
- Positive pay
Correct answer: Remote disbursement
Remote disbursement intentionally uses a geographically distant bank to extend mail and clearing float, delaying the actual cash outflow.
Question 2: A company's cash conversion cycle (CCC) is calculated as:
- DSO + DIO - DPO (Correct answer)
- DPO + DSO - DIO
- DIO - DSO + DPO
- DSO - DIO - DPO
Correct answer: DSO + DIO - DPO
CCC = Days Sales Outstanding + Days Inventory Outstanding − Days Payable Outstanding, measuring the time cash is tied up in operations.
Question 3: What is the primary purpose of a lockbox network in cash management?
- To delay payments to vendors
- To accelerate collection of receivables (Correct answer)
- To consolidate disbursements
- To hedge foreign exchange risk
Correct answer: To accelerate collection of receivables
A lockbox network routes customer payments to post office boxes near regional banks, reducing mail float and speeding up deposit availability.
Question 4: Under the Federal Reserve's Regulation CC, what is the maximum hold period a bank may place on a local check for a new account?
- 1 business day
- 3 business days
- 9 business days (Correct answer)
- 5 business days
Correct answer: 9 business days
Regulation CC allows banks to impose a 9 business-day hold on checks deposited into new accounts (open less than 30 days).
Question 5: A sweep account automatically transfers excess balances into which type of instrument at the end of each business day?
- Long-term Treasury bonds
- Overnight money market funds or repo agreements (Correct answer)
- Commercial paper with 90-day maturity
- Foreign currency deposits
Correct answer: Overnight money market funds or repo agreements
Sweep accounts move idle balances into overnight vehicles such as money market funds or repurchase agreements to earn a return without sacrificing liquidity.
Question 6: Which metric best measures the efficiency of a company's accounts payable process from a cash management perspective?
- Days Payable Outstanding (DPO) (Correct answer)
- Days Sales Outstanding (DSO)
- Net Operating Cycle
- Cash Turnover Ratio
Correct answer: Days Payable Outstanding (DPO)
DPO measures the average number of days a company takes to pay its suppliers, directly reflecting how long cash is retained before disbursement.
Question 7: Which of the following best describes 'availability float' in the context of bank collections?
- The delay between check issuance and the payee depositing it
- The delay between deposit and when funds are credited as collected (Correct answer)
- The time a check spends in postal transit
- The time required to physically process a check at a lockbox
Correct answer: The delay between deposit and when funds are credited as collected
Availability float (also called collection float) is the lag between the moment a check is deposited and when the bank grants collected fund status.
CCM Cash Management Fundamentals 2
Which disbursement method allows a company to maximize float by issuing checks drawn on a distant bank?