Cash Flow Management Flashcards
6 cards from real CFM 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 Flow Management flashcards as text
What is 'float' in cash management?
Answer: The time delay between when a payment is initiated and when funds are actually available
Float represents the time lag between initiating a payment and its actual clearing, during which both payer and payee may show the same funds.
What does the term 'controlled disbursement' mean in banking?
Answer: A bank service that provides early morning notification of checks clearing that day
Controlled disbursement is a bank service that informs companies each morning of the exact dollar amount of checks clearing that day, enabling precise funding.
Which investment is typically used for short-term cash management due to its safety and liquidity?
Answer: Treasury bills (T-bills)
Treasury bills are short-term US government obligations that offer safety, high liquidity, and a known return, making them ideal for cash management.
What is the optimal cash balance model proposed by Baumol?
Answer: Treat cash management like inventory, balancing transaction costs and opportunity costs
The Baumol model applies the economic order quantity concept to cash, minimizing total costs by balancing the cost of converting securities to cash against the opportunity cost of holding idle cash.
Which of the following best describes a revolving credit facility?
Answer: A committed bank credit line that can be drawn, repaid, and redrawn up to a set limit
A revolving credit facility allows a borrower to draw funds, repay them, and re-borrow up to the committed limit, providing flexible short-term liquidity.
In managing working capital, what does 'stretching payables' mean?
Answer: Extending the time before paying suppliers to preserve cash
Stretching payables means delaying payments to suppliers as long as possible within agreed terms to keep cash in the business longer.