CFC Treasury Management & Cash Flow 4

Question 1

A treasurer is applying the Baumol-Allais-Tobin (BAT) model to optimize cash balances. What trade-off does the model balance?

Accepted Answer

Transaction costs of converting securities versus opportunity cost of holding idle cash

Answer

The BAT model minimizes total cost by balancing transaction costs (converting investments to cash) against the opportunity cost of excess cash.

Question 2

A company enters a cross-currency basis swap to convert USD floating-rate liabilities into EUR floating-rate liabilities. What primary risk does this hedge?

Accepted Answer

Both currency and interest rate risk simultaneously

Answer

A cross-currency swap exchanges both principal and interest in different currencies, hedging both FX exposure and interest rate mismatches.

Question 3

Which benchmark is most commonly used for US dollar overnight lending between banks under the post-LIBOR reform environment?

Accepted Answer

SOFR (Secured Overnight Financing Rate)

Answer

SOFR replaced USD LIBOR as the preferred US dollar overnight benchmark rate following the LIBOR phase-out.

Question 4

A company's operating cash flow is $8M, capital expenditures are $3M, and it pays $1M in dividends. What is its free cash flow to equity (FCFE)?

Accepted Answer

$4M

Answer

FCFE = Operating CF − CapEx − Dividends = $8M − $3M − $1M = $4M available to equity holders.

Question 5

What is the key distinction between a revolving credit facility and a term loan from a treasury liquidity perspective?

Accepted Answer

A revolving facility allows repeated drawdowns up to a limit; a term loan disburses once and amortizes

Answer

A revolver provides flexible, repeatable access to credit up to a committed limit, whereas a term loan is a one-time disbursement that amortizes over time.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Treasury Management & Cash Flow 4