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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 treasury policy requires a minimum liquidity coverage ratio (LCR) of 100%. If high-quality liquid assets (HQLA) total $50M and net cash outflows over 30 days are $60M, what action is required?

    Answer: Increase HQLA by at least $10M to meet the 100% threshold

    LCR = HQLA / Net Cash Outflows = $50M/$60M = 83%; the company must add $10M in HQLA to reach 100%.

  2. Which treasury risk arises when a company cannot sell a financial asset quickly at fair market value without significantly affecting its price?

    Answer: Liquidity/market liquidity risk

    Market liquidity risk is the risk that selling an asset rapidly would require a significant price concession due to thin trading.

  3. A US company has €20M in European receivables due in 90 days. To eliminate FX risk, the treasurer sells €20M forward at today's forward rate. At settlement, the spot rate is higher than the forward rate. What is the economic outcome?

    Answer: The company receives the locked-in forward rate, missing the spot rate upside

    A forward hedge locks in the forward rate; the company receives exactly that rate regardless of where spot settles, foregoing any upside.

  4. A CFC candidate reviews a month-end bank reconciliation and finds that outstanding checks total $150,000. How should these be treated in the cash balance per books?

    Answer: They are already deducted in the book balance but not yet cleared the bank

    Outstanding checks have been recorded as book deductions already; they represent items not yet cleared on the bank statement.

  5. What is the primary purpose of a treasury management system (TMS) in a large corporation?

    Answer: To centralize visibility, control, and reporting of cash positions and financial risk

    A TMS consolidates cash positions, automates transactions, and provides risk management tools across the enterprise treasury function.

  6. A company uses the Miller-Orr model to manage cash. The model sets a lower bound of $1M, an upper bound of $4M, and a return point of $2.33M. When cash hits $4M, what does the model prescribe?

    Answer: Invest $1.67M in marketable securities to return to the return point

    When cash reaches the upper bound, the Miller-Orr model prescribes investing the excess to bring the balance back to the return point ($4M − $2.33M = $1.67M invested).

  7. Which short-term borrowing instrument is issued directly to investors without a bank intermediary, is unsecured, and typically has maturities of 1–270 days?

    Answer: Commercial paper

    Commercial paper is an unsecured, short-term promissory note issued by corporations directly to investors, bypassing bank intermediation.