CFM CFM Treasury & Cash Management 1 — Questions and Answers
Question 1: What is the primary objective of corporate treasury management?
- Maximizing gross profit margins
- Ensuring the company has sufficient liquidity to meet obligations while optimizing cash use (Correct answer)
- Minimizing the number of bank accounts
- Increasing accounts receivable balances
Correct answer: Ensuring the company has sufficient liquidity to meet obligations while optimizing cash use
Treasury management focuses on maintaining adequate liquidity for operations while deploying excess cash efficiently and managing financial risk.
Question 2: Which technique concentrates cash from multiple subsidiary accounts into a single master account?
- Lockbox processing
- Zero-balance account (ZBA) or cash pooling (Correct answer)
- Factoring
- Reverse factoring
Correct answer: Zero-balance account (ZBA) or cash pooling
Cash pooling (zero-balance accounts) sweeps subsidiary balances into a master account daily, allowing centralized management of liquidity and reducing idle cash.
Question 3: A company's cash conversion cycle (CCC) equals:
- DSO + DIO + DPO
- DSO + DIO - DPO (Correct answer)
- DIO - DSO + DPO
- DPO - DIO - DSO
Correct answer: DSO + DIO - DPO
CCC = Days Sales Outstanding + Days Inventory Outstanding - Days Payable Outstanding, measuring how many days cash is tied up in operations.
Question 4: Which short-term investment instrument is typically issued by the US government and matures in one year or less?
- Treasury Bonds
- Treasury Bills (T-Bills) (Correct answer)
- Treasury Notes
- TIPS
Correct answer: Treasury Bills (T-Bills)
Treasury Bills are short-term US government debt securities with maturities of 4, 8, 13, 26, or 52 weeks, considered among the safest and most liquid short-term investments.
Question 5: What is a lockbox system used for in cash management?
- Storing physical currency securely
- Accelerating collection of customer payments by routing receipts to a bank P.O. box (Correct answer)
- Delaying outgoing payments to suppliers
- Encrypting electronic fund transfers
Correct answer: Accelerating collection of customer payments by routing receipts to a bank P.O. box
A lockbox system directs customers to mail payments to a post office box managed by the company's bank, which processes receipts daily, speeding up deposit and reducing float.
Question 6: What does 'float' refer to in the context of cash management?
- The company's cash balance in savings accounts
- The difference between the book balance and bank balance due to timing of transactions (Correct answer)
- Interest earned on short-term investments
- The number of days until accounts receivable are due
Correct answer: The difference between the book balance and bank balance due to timing of transactions
Float is the temporary difference between the company's book cash balance and its bank balance, arising from checks in transit, processing delays, or uncollected deposits.
CFM CFM Treasury & Cash Management 1
What is the primary objective of corporate treasury management?