CFM Treasury & Working Capital Management 3

Question 1

What is supply chain financing (reverse factoring)?

Accepted Answer

A program where buyers arrange early payment to suppliers through a bank at favorable rates, using the buyer's credit rating

Answer

A company selling its own receivables to a bank at a discount

Answer

Inventory financing secured by warehouse receipts

Answer

A factoring agreement where the supplier takes on credit risk

Question 2

What does 'days sales outstanding' (DSO) measure and why does it matter for working capital?

Accepted Answer

The average number of days to collect receivables after a sale; a lower DSO improves cash flow

Answer

The average time to convert inventory to sales; longer DSO improves cash flow

Answer

Total receivables divided by current liabilities

Answer

The credit period offered to customers

Question 3

What is an accounts receivable aging report used for?

Accepted Answer

Monitoring overdue customer balances by time buckets to manage collections and estimate bad debt allowances

Answer

Calculating the weighted average cost of receivables

Answer

Comparing receivables to industry benchmarks

Answer

Forecasting future sales based on customer payment patterns

Question 4

What is dynamic discounting in the context of accounts payable?

Accepted Answer

A program where buyers offer early payment to suppliers at a sliding discount tied to how early payment is made

Answer

Adjusting prices dynamically based on customer credit scores

Answer

Discounting future receivables to present value for reporting

Answer

Negotiating volume discounts with high-spend suppliers

Question 5

In treasury risk management, what is counterparty risk?

Accepted Answer

The risk that the other party in a financial transaction will default on its obligations

Answer

The risk that interest rates will move against a hedging position

Answer

The risk of loss from fraudulent treasury employees

Answer

The risk of regulatory changes affecting treasury instruments

Question 6

Which short-term investment option is backed by the US government and considered virtually risk-free?

Accepted Answer

US Treasury bills (T-bills)

Answer

Money market mutual funds

Answer

Investment-grade commercial paper

Answer

Certificates of deposit (CDs)