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Cash & Treasury Management Flashcards

6 cards from real AAT L4 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 Cash & Treasury Management flashcards as text

  1. A cash flow forecast is prepared to:

    Answer: Predict future cash surpluses and deficits, enabling the business to arrange financing or invest surplus cash in advance

    Cash flow forecasts (short-term: weekly/monthly; medium-term: quarterly/annual) predict cash inflows and outflows, enabling management to plan for shortfalls before they occur and optimise the use of surplus cash.

  2. Netting in treasury management refers to:

    Answer: Offsetting cash flows between group companies or between a business and counterparties to reduce gross flows and currency exposure

    Cash netting (or multilateral netting) offsets receipts and payments between group entities or trading counterparties, settling only the net balance — reducing transaction costs, currency conversion costs, and gross credit exposure.

  3. The main risk of holding excessive cash in a business is:

    Answer: An opportunity cost — cash is not deployed in value-creating investments and earns only low returns

    Holding surplus cash above operational needs incurs an opportunity cost: cash earns minimal returns in a deposit account when it could be invested in higher-return assets or used to reduce expensive debt.

  4. A bank overdraft differs from a term loan in that:

    Answer: Overdrafts are repayable on demand and fluctuate with daily cash needs; term loans are for fixed amounts over fixed periods

    An overdraft is flexible and repayable on demand — it fluctuates with cash flow needs and is suitable for short-term working capital. A term loan is a fixed amount borrowed for a defined period with scheduled repayments.

  5. Currency risk in treasury management is managed using instruments such as:

    Answer: Forward exchange contracts, currency options, and currency swaps

    Currency (foreign exchange) risk is managed using: forward contracts (locking in a rate), currency options (right but not obligation to exchange), currency swaps (exchanging principal in different currencies), and natural hedging (matching revenues and costs in same currency).

  6. The liquidity ratio most focused on highly liquid assets (excluding both inventory AND receivables) is:

    Answer: Cash ratio

    The cash ratio = Cash and cash equivalents / Current liabilities. It is the most stringent short-term liquidity measure, considering only the most immediately liquid assets — cash and near-cash.