CTP Working Capital Management 5

Question 1

Which of the following is a characteristic of spontaneous financing?

Accepted Answer

It arises automatically from normal business operations, such as trade payables

Answer

Spontaneous financing arises automatically as a byproduct of operating activity—trade payables and accrued liabilities grow naturally as sales increase.

Question 2

A treasury professional is evaluating whether to extend credit to a new customer. Which metric is MOST directly useful?

Accepted Answer

The customer's debt service coverage ratio (DSCR)

Answer

DSCR measures whether a customer generates enough cash flow to service its debt obligations, directly indicating capacity to pay trade credit on time.

Question 3

A notional pooling arrangement differs from physical cash pooling primarily because:

Accepted Answer

Notional pooling offsets balances for interest calculation without moving actual funds

Answer

In notional pooling, the bank calculates interest on the net position across accounts without physically moving funds, preserving local subsidiary autonomy.

Question 4

Which of the following best describes 'stretching payables' as a working capital strategy?

Accepted Answer

Delaying payment to suppliers beyond agreed terms to retain cash longer

Answer

Stretching payables means intentionally delaying supplier payments beyond terms, using trade credit as an interest-free short-term funding source—though it risks damaging supplier relationships.

Question 5

The Baumol model for cash management is analogous to which inventory management model?

Accepted Answer

Economic Order Quantity (EOQ)

Answer

The Baumol model applies the EOQ concept to cash management, balancing the transaction cost of converting securities to cash against the opportunity cost of holding idle cash.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

CTP Working Capital Management 5