FA Treasury and Cash Management 2

Question 1

What is the primary function of a short-term cash flow forecast in treasury management?

Accepted Answer

Identifying future cash surpluses or deficits to plan investments or financing

Answer

Cash flow forecasts allow the treasurer to anticipate surpluses available for investment or deficits that require borrowing, enabling proactive financial management.

Question 2

Which of the following best describes a revolving credit facility?

Accepted Answer

A flexible borrowing arrangement allowing repeated drawdowns up to a set credit limit

Answer

A revolving credit facility lets a company borrow, repay, and reborrow up to a predetermined limit, providing flexible short-term liquidity as needs change.

Question 3

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

Accepted Answer

Economic Order Quantity (EOQ)

Answer

The Baumol model applies EOQ logic to cash, balancing the fixed cost of converting securities to cash against the opportunity cost of holding excess cash.

Question 4

Concentration banking helps a company by:

Accepted Answer

Consolidating dispersed funds from multiple accounts into a central master account

Answer

Concentration banking pools cash from regional or subsidiary accounts into one central account, improving control and enabling more effective deployment of idle funds.

Question 5

A company with Days Sales Outstanding (DSO) of 35 days, Days Inventory Outstanding (DIO) of 50 days, and Days Payable Outstanding (DPO) of 40 days has a cash conversion cycle of:

Accepted Answer

45 days

Answer

CCC = DSO + DIO − DPO = 35 + 50 − 40 = 45 days.

FA - Finance Analyst Practice Test

FA - Finance Analyst Practice Test

FA Treasury and Cash Management 2