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

A revolving credit facility provides flexible access to capital — the borrower can draw down and repay repeatedly, making it ideal for managing working capital fluctuations.

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

A foreign currency option provides the right (not obligation) to transact at a set rate, offering downside protection while allowing participation in favorable rate movements.

Question 3

Days Sales Outstanding (DSO) is calculated as:

Accepted Answer

(Accounts Receivable ÷ Total Revenue) × 365

Answer

DSO measures the average number of days to collect payment after a sale; lower DSO indicates faster collections and better cash flow.

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

An LC shifts payment risk from the buyer to the bank — the bank commits to pay the seller once the required trade documents are presented and verified.

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

Stretching DPO means paying suppliers at the latest contractually allowable date, preserving cash inside the business for a longer period.

CFO - Certified Chief Financial Officer Practice Test

CFO - Certified Chief Financial Officer Practice Test

CFO Treasury Management & Cash Flow 2