CFM Treasury & Working Capital Management

Question 1

What is the primary objective of treasury management?

Accepted Answer

Ensuring the company has sufficient liquidity while managing financial risks efficiently

Answer

Treasury management ensures the company has adequate liquidity to meet obligations, manages financial risks (interest rate, FX, credit), and optimizes the cost of capital.

Question 2

What is working capital defined as?

Accepted Answer

Current assets minus current liabilities

Answer

Working capital is calculated as current assets minus current liabilities, representing the short-term liquidity available to fund day-to-day operations.

Question 3

What is days payable outstanding (DPO)?

Accepted Answer

Average number of days a company takes to pay its suppliers

Answer

DPO measures how long a company takes to pay its accounts payable, calculated as (accounts payable ÷ COGS) × days in the period.

Question 4

Which of the following increases a company's working capital?

Accepted Answer

Issuing long-term bonds and using proceeds to buy inventory

Answer

Issuing long-term bonds increases cash (a current asset) without increasing current liabilities, thereby increasing working capital.

Question 5

What is an interest rate swap?

Accepted Answer

A derivative where two parties exchange fixed-rate and floating-rate interest payments on a notional principal

Answer

An interest rate swap involves exchanging a fixed interest rate for a floating rate (or vice versa) on a notional principal amount, allowing companies to manage rate risk without refinancing debt.

CFM - Certified Finance Manager Practice Test

CFM - Certified Finance Manager Practice Test

CFM Treasury & Working Capital Management