CTP Corporate Liquidity and Cash Management 5

Question 1

A company is evaluating whether to factor its receivables or use them as collateral for a revolving credit facility. Which factor MOST favors factoring?

Accepted Answer

The company's receivables have long collection cycles averaging 90+ days with credit risk concerns

Answer

Factoring is most beneficial when receivables have extended terms and credit risk, as the factor assumes collection risk and provides immediate liquidity.

Question 2

In a controlled disbursement account arrangement, the bank notifies the company each morning of the EXACT dollar amount of checks that will clear that day. This information is used PRIMARILY to:

Accepted Answer

Fund only the precise amount needed, minimizing idle balances

Answer

Controlled disbursement gives same-day funding information so the company can fund the account with the exact clearing amount, eliminating excess idle balances.

Question 3

A foreign subsidiary holds €10M in a European account. The parent company wants to access this liquidity without a formal dividend or intercompany loan. Which technique BEST achieves this within a banking structure?

Accepted Answer

Cross-border physical cash pooling with same-day repatriation

Answer

Cross-border physical pooling sweeps subsidiary balances to the parent's header account daily, accessing foreign liquidity without formal dividend or loan structures.

Question 4

When a treasury manager says a company has 'adequate liquidity,' this MOST precisely means the company:

Accepted Answer

Can meet all financial obligations as they come due without distress

Answer

Liquidity adequacy means having sufficient resources—cash, equivalents, and credit capacity—to meet all obligations on time without asset fire sales.

Question 5

Which risk is MOST directly mitigated by a company maintaining a committed revolving credit facility as a liquidity reserve?

Accepted Answer

Refinancing risk if capital markets become inaccessible

Answer

A committed revolving credit facility provides assured access to liquidity even when capital markets close, directly mitigating refinancing and liquidity risk.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

CTP Corporate Liquidity and Cash Management 5