CFO Treasury Management & Cash Flow 2

Question 1

A revolving credit facility differs from a term loan primarily because it:

Accepted Answer

Allows a borrower to draw, repay, and re-draw funds up to a committed limit during the facility period

Answer

Has a fixed repayment schedule with no flexibility

Answer

Is secured exclusively by the company's real estate assets

Answer

Cannot be used for working capital purposes

Question 2

Which hedging instrument gives a company the right, but not the obligation, to buy or sell foreign currency at a predetermined rate?

Accepted Answer

Foreign currency option

Answer

Forward contract

Answer

Cross-currency swap

Answer

Currency futures contract

Question 3

Days Sales Outstanding (DSO) is calculated as:

Accepted Answer

(Accounts Receivable ÷ Total Revenue) × 365

Answer

Total Revenue ÷ Accounts Receivable

Answer

(Cost of Goods Sold ÷ Inventory) × 365

Answer

Net Income ÷ Total Assets

Question 4

A letter of credit (LC) issued by a bank in international trade primarily serves to:

Accepted Answer

Guarantee payment to the seller upon presentation of compliant shipping documents

Answer

Hedge currency risk on the transaction

Answer

Provide the buyer with extended credit terms beyond 180 days

Answer

Replace the need for a commercial invoice

Question 5

Which working capital strategy involves deliberately extending the time taken to pay suppliers while staying within agreed credit terms?

Accepted Answer

Stretching Days Payable Outstanding (DPO)

Answer

Reducing Days Sales Outstanding

Answer

Supply chain finance / dynamic discounting

Answer

Accelerating inventory turnover

Question 6

A bank sweep account automatically:

Accepted Answer

Moves excess cash above a target balance into a higher-yielding investment account daily

Answer

Converts foreign currency deposits into US dollars at market rates

Answer

Issues commercial paper on behalf of the corporate treasurer

Answer

Calculates and remits payroll taxes to the IRS

Question 7

Which of the following best describes 'counterparty risk' in treasury operations?

Accepted Answer

The risk that the other party to a financial contract will fail to fulfill its obligations

Answer

The risk that interest rates move adversely on a fixed-rate bond

Answer

The risk of commodity price increases affecting raw material costs

Answer

The risk that regulatory changes will invalidate existing contracts