CCM Treasury Operations and Banking Relations 2

Question 1

A company negotiates a compensating balance arrangement with its bank. What is the primary purpose of this arrangement?

Accepted Answer

To offset bank service fees by maintaining a minimum deposit balance

Answer

Compensating balances are minimum deposit levels a company maintains to offset the cost of banking services or credit facilities.

Question 2

Which type of bank account allows a company to issue checks up to a predetermined credit limit even with a zero balance?

Accepted Answer

Controlled Disbursement Account

Answer

Controlled disbursement accounts are linked to a master account; the bank reports check presentments early each morning so the company can fund only the exact amount needed.

Question 3

A treasury manager wants to consolidate balances from multiple subsidiary accounts into one master account daily. Which structure best achieves this?

Accepted Answer

Physical cash pooling (ZBA structure)

Answer

Physical cash pooling with Zero Balance Accounts (ZBAs) automatically sweeps subsidiary balances to or from a master account to maintain zero balances in subsidiary accounts.

Question 4

What is the key advantage of notional pooling compared to physical pooling for a multinational corporation?

Accepted Answer

Interest is calculated on the net combined balance without actual fund transfers

Answer

Notional pooling offsets debit and credit balances across accounts mathematically, so interest is calculated on the net position without requiring physical fund transfers.

Question 5

In evaluating bank performance under an Account Analysis Statement, what does 'earnings credit rate' (ECR) represent?

Accepted Answer

The rate applied to average collected balances to generate earnings credits offsetting service charges

Answer

The ECR is applied to average investable balances to calculate earnings credits, which are then used to offset the bank's service charges on the account analysis statement.

(CCM) Certified Cash Manager Practice Test

(CCM) Certified Cash Manager Practice Test

CCM Treasury Operations and Banking Relations 2