CCM Cash Management Fundamentals 3 — Questions and Answers
Question 1: A controlled disbursement account notifies a company of the day's check presentments by:
- End of business the prior day
- Early morning of the presentment day (Correct answer)
- Midday of the presentment day
- At month-end reconciliation
Correct answer: Early morning of the presentment day
Controlled disbursement accounts provide an early-morning funding notification so the company can transfer only the exact amount needed to cover that day's checks.
Question 2: The Baumol model for optimal cash balance is analogous to which inventory concept?
- Safety stock calculation
- Economic Order Quantity (EOQ) (Correct answer)
- Just-in-Time replenishment
- ABC analysis
Correct answer: Economic Order Quantity (EOQ)
The Baumol model applies EOQ logic to cash, balancing the fixed cost of converting securities to cash against the opportunity cost of holding idle cash.
Question 3: Which type of netting arrangement consolidates intercompany payments across multiple subsidiaries into a single net settlement?
- Bilateral netting
- Multilateral netting (Correct answer)
- Payment factory
- In-house bank
Correct answer: Multilateral netting
Multilateral netting calculates each entity's net position against all others simultaneously, reducing the total number and value of cross-border transfers.
Question 4: A company receives a large one-time payment and needs to invest it for exactly 47 days. Which instrument is most appropriate?
- 5-year Treasury note
- 30-day commercial paper
- Term repurchase agreement (Correct answer)
- Floating rate note
Correct answer: Term repurchase agreement
A term repurchase agreement can be structured for a specific number of days, providing a precise 47-day maturity match with minimal credit risk.
Question 5: Under SWIFT's MT940 message type, what financial information is communicated?
- Payment instructions for wire transfers
- Letters of credit issuance details
- Customer account statement (end-of-day balance and transaction detail) (Correct answer)
- Foreign exchange confirmation
Correct answer: Customer account statement (end-of-day balance and transaction detail)
MT940 is the SWIFT standard statement message transmitting end-of-day account balances and transaction details from a bank to its corporate customer.
Question 6: Which risk arises when a company's bank fails before settling an intraday wire payment that has already been sent?
- Liquidity risk
- Herstatt (settlement) risk (Correct answer)
- Operational risk
- Basis risk
Correct answer: Herstatt (settlement) risk
Herstatt risk (a form of settlement risk) occurs when one leg of a payment settles but the counterparty fails before delivering the offsetting leg.
Question 7: When evaluating short-term investment alternatives, which measure adjusts a bond-equivalent yield for the actual number of days in a year?
- Discount yield
- Bond equivalent yield (BEY)
- Effective annual rate (EAR) (Correct answer)
- Money market yield
Correct answer: Effective annual rate (EAR)
The effective annual rate (EAR) compounds the periodic return to a full 365-day year, enabling true apples-to-apples comparison across instruments with different day-count conventions.
CCM Cash Management Fundamentals 3
A controlled disbursement account notifies a company of the day's check presentments by: