FA Treasury and Cash Management

Question 1

What is the primary objective of treasury management within an organization?

Accepted Answer

Ensuring optimal liquidity while managing financial risks

Answer

Treasury management focuses on maintaining sufficient liquidity to meet obligations while identifying and managing financial risks such as interest rate and currency exposures.

Question 2

Which of the following is a key metric used to evaluate how efficiently a company collects its receivables in the cash conversion cycle?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

DSO measures the average number of days it takes to collect payment after a sale, directly affecting the cash conversion cycle.

Question 3

A company has $400,000 in average daily cash outflows and maintains a 6-day liquidity buffer. What is the minimum target cash balance?

Accepted Answer

$2,400,000

Answer

Minimum target cash = daily outflows × buffer days = $400,000 × 6 = $2,400,000.

Question 4

In treasury management, 'float' refers to:

Accepted Answer

The difference between bank balance and book balance due to checks in transit

Answer

Float is the difference between a company's book balance and its bank balance caused by checks written but not yet cleared or deposits not yet processed.

Question 5

Which short-term instrument is most commonly used by corporate treasurers to invest excess cash due to its high liquidity and safety?

Accepted Answer

Treasury bills (T-bills)

Answer

T-bills are short-term, highly liquid U.S. government obligations with minimal credit risk, making them ideal for short-term cash investment.

FA - Finance Analyst Practice Test

FA - Finance Analyst Practice Test

FA Treasury and Cash Management