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
The economic order quantity (EOQ) model in inventory management determines the:
Answer: Order quantity that minimises total inventory holding costs and ordering costs
EOQ = √(2 × Annual demand × Ordering cost / Holding cost per unit). It calculates the order size that minimises the sum of ordering costs (per order) and holding costs (per unit held) — balancing the two opposing cost drivers.
A just-in-time (JIT) inventory system aims to:
Answer: Receive materials only when needed for production, minimising inventory holding costs and waste
JIT reduces inventory to near zero by receiving materials only when required for production — eliminating holding costs, reducing waste, and freeing working capital, but requiring reliable suppliers and short lead times.
The reorder level for inventory is calculated as:
Answer: Maximum usage per day × maximum lead time — ensuring stock is reordered before running out
Reorder level = Maximum daily usage × Maximum lead time. By reordering when the balance falls to this level, the business ensures stock will not run out even if demand is at its peak and the supplier takes longest to deliver.
Which of the following is a tool used to manage interest rate risk on a floating-rate loan?
Answer: Interest rate cap — sets a maximum interest rate; the bank pays compensation if rates rise above the cap
An interest rate cap is a derivative that limits the maximum interest rate paid on a floating-rate loan; if rates rise above the cap level, the seller compensates the buyer for the excess — providing cost certainty with upside retained if rates fall.
The optimum cash balance in Miller-Orr model is determined by:
Answer: Calculating the return point and upper/lower limits based on the variance of daily cash flows and transaction costs
The Miller-Orr model uses variance of cash flows and the cost of transactions to set a lower limit (minimum balance), an upper limit, and a return point (target balance); when cash hits the limits, investments are bought or sold to restore the return point.
Treasury management systems (TMS) provide which key benefit to a large organisation?
Answer: They automate cash position reporting, deal capture, exposure tracking, bank connectivity, and compliance reporting — improving efficiency and control
A TMS centralises and automates key treasury functions: real-time cash position visibility, deal confirmation and settlement, bank account management, exposure measurement, and compliance reporting — improving efficiency and reducing operational risk.