CTP Working Capital Management 3

Question 1

Which of the following is the BEST measure of a company's short-term liquidity?

Accepted Answer

Quick ratio

Answer

The quick ratio (cash + marketable securities + receivables divided by current liabilities) measures ability to meet short-term obligations without relying on inventory liquidation.

Question 2

A company maintains excess cash in a money market fund rather than paying down its revolving credit facility. This decision is MOST justified when:

Accepted Answer

Prepayment penalties on the revolver outweigh the interest savings

Answer

If prepayment penalties on the revolving credit facility exceed the net interest cost of carrying idle cash, it may be cheaper to retain cash in a money market fund.

Question 3

What is the PRIMARY benefit of implementing a payment factory in a multinational company's treasury operations?

Accepted Answer

It centralizes payment processing to reduce bank fees and improve control

Answer

A payment factory centralizes outgoing payments across subsidiaries, achieving economies of scale, reducing banking fees, and strengthening payment controls.

Question 4

Under the Economic Order Quantity (EOQ) model, ordering costs and carrying costs are EQUAL at the:

Accepted Answer

Optimal order quantity

Answer

The EOQ is the quantity at which total ordering costs equal total carrying costs, minimizing total inventory costs.

Question 5

A firm factors its receivables on a recourse basis. Which risk does the firm RETAIN?

Accepted Answer

Credit default risk of the customer

Answer

With recourse factoring, the seller retains the credit risk; if the buyer defaults, the seller must repurchase the receivable from the factor.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

CTP Working Capital Management 3