CPFM Treasury Management and Cash Flow Forecasting 2

Question 1

Which technique eliminates the need for a company to convert one currency to another when settling intercompany transactions?

Accepted Answer

Netting

Answer

Netting consolidates intercompany payables and receivables so only the net difference is settled, reducing currency conversion costs.

Question 2

A treasury department uses a notional pooling arrangement primarily to:

Accepted Answer

Reduce net interest expense by offsetting balances

Answer

Notional pooling offsets credit and debit balances across accounts to reduce net borrowing costs without physically moving funds.

Question 3

Which risk arises from the possibility that a counterparty in a financial transaction will fail to meet its obligations?

Accepted Answer

Counterparty credit risk

Answer

Counterparty credit risk is the risk that the other party in a transaction defaults before the final settlement.

Question 4

In cash forecasting, the direct method differs from the indirect method primarily because it:

Accepted Answer

Lists actual cash receipts and disbursements

Answer

The direct method itemizes actual cash receipts and disbursements, providing a more granular view of cash movements.

Question 5

A company enters into a revolving credit facility primarily to:

Accepted Answer

Provide flexible short-term borrowing access

Answer

A revolving credit facility provides flexible, short-term borrowing capacity that can be drawn, repaid, and redrawn as needed.

CPFM Practice Test