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Treasury Management & Cash Flow Flashcards

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

Read the first 7 Treasury Management & Cash Flow flashcards as text

  1. A treasurer is applying the Baumol-Allais-Tobin (BAT) model to optimize cash balances. What trade-off does the model balance?

    Answer: Transaction costs of converting securities versus opportunity cost of holding idle cash

    The BAT model minimizes total cost by balancing transaction costs (converting investments to cash) against the opportunity cost of excess cash.

  2. A company enters a cross-currency basis swap to convert USD floating-rate liabilities into EUR floating-rate liabilities. What primary risk does this hedge?

    Answer: Both currency and interest rate risk simultaneously

    A cross-currency swap exchanges both principal and interest in different currencies, hedging both FX exposure and interest rate mismatches.

  3. Which benchmark is most commonly used for US dollar overnight lending between banks under the post-LIBOR reform environment?

    Answer: SOFR (Secured Overnight Financing Rate)

    SOFR replaced USD LIBOR as the preferred US dollar overnight benchmark rate following the LIBOR phase-out.

  4. A company's operating cash flow is $8M, capital expenditures are $3M, and it pays $1M in dividends. What is its free cash flow to equity (FCFE)?

    Answer: $4M

    FCFE = Operating CF − CapEx − Dividends = $8M − $3M − $1M = $4M available to equity holders.

  5. What is the key distinction between a revolving credit facility and a term loan from a treasury liquidity perspective?

    Answer: A revolving facility allows repeated drawdowns up to a limit; a term loan disburses once and amortizes

    A revolver provides flexible, repeatable access to credit up to a committed limit, whereas a term loan is a one-time disbursement that amortizes over time.

  6. A company's accounts payable days (DPO) are 40, inventory days (DIO) are 60, and DSO is 50. What is the cash conversion cycle?

    Answer: 70 days

    CCC = DSO + DIO − DPO = 50 + 60 − 40 = 70 days.

  7. Under FASB ASC 815, a treasury team designates a currency forward as a cash flow hedge of a forecasted export sale. Where is the effective portion of the gain or loss initially recorded?

    Answer: In other comprehensive income (OCI)

    For a qualifying cash flow hedge, the effective portion of the derivative's gain or loss is deferred in OCI until the hedged transaction affects earnings.