AAT Level 4 - Professional Diploma in Accounting Cash and Treasury Management Questions and Answers

Question 1

A business forecasts credit sales of £60,000 for May.
Company policy is to collect 40% of credit sales in the month of sale, and the remaining 60% in the following month.
Cash sales for May are £15,000.
Forecast payments to suppliers are £35,000 and other cash expenses are £12,000.
The opening cash balance on 1st May is £8,000.
What is the forecast closing cash balance at 31st May?

Accepted Answer

£0

Answer

£(8,000)

Answer

£36,000

Answer

£(24,000)

Question 2

A UK retail company has a negative Cash Conversion Cycle (CCC). Which of the following statements is the most accurate interpretation of this situation?

Accepted Answer

The company receives cash from customers before it is required to pay its suppliers.

Answer

The company is taking too long to pay its suppliers, indicating poor credit management.

Answer

The company has a serious liquidity problem and cannot meet its short-term debts.

Answer

The company is holding excessive levels of inventory for the level of sales.

Question 3

A UK-based company has sold goods to a US customer and is due to receive $250,000 in 90 days. The treasury manager is concerned that the pound sterling (£) may strengthen against the US dollar ($), reducing the value of the receipt. Which of the following is the most appropriate action to hedge this specific transaction risk?

Accepted Answer

Purchase a 90-day forward exchange contract to sell $250,000.

Answer

Enter into an interest rate swap for 90 days.

Answer

Take out a sterling overdraft facility for the equivalent value.

Answer

Purchase a 90-day forward exchange contract to buy $250,000.

Question 4

A company's finance director needs to transfer £350,000 to a supplier's account. It is critical that the funds are received and cleared on the same day to ensure the immediate dispatch of high-value goods. Which UK payment system should be used?

Accepted Answer

CHAPS (Clearing House Automated Payment System)

Answer

Bacs (Bankers' Automated Clearing System)

Answer

Faster Payments Service (FPS)

Answer

Direct Debit

Question 5

When managing a company's short-term cash surpluses, the treasury department typically prioritises its investment objectives. Which of the following lists these objectives in the correct order of importance?

Accepted Answer

Security, Liquidity, Profitability

Answer

Profitability, Security, Liquidity

Answer

Liquidity, Profitability, Security

Answer

Profitability, Liquidity, Security

Question 6

A growing manufacturing business is experiencing cash flow pressure because its major customers demand long credit terms. The business has a substantial and increasing sales ledger of creditworthy customers. Which of the following short-term financing methods is most directly linked to the value of these outstanding customer invoices?

Accepted Answer

Invoice discounting

Answer

A committed bank loan

Answer

An issue of commercial paper

Answer

A bank overdraft