CFM Treasury & Cash Management Flashcards

What is the primary objective of corporate treasury management?

Answer: Ensuring the company has sufficient liquidity to meet obligations while optimizing cash use

Treasury management focuses on maintaining adequate liquidity for operations while deploying excess cash efficiently and managing financial risk.

Which technique concentrates cash from multiple subsidiary accounts into a single master account?

Answer: Zero-balance account (ZBA) or cash pooling

Cash pooling (zero-balance accounts) sweeps subsidiary balances into a master account daily, allowing centralized management of liquidity and reducing idle cash.

A company's cash conversion cycle (CCC) equals:

Answer: DSO + DIO - DPO

CCC = Days Sales Outstanding + Days Inventory Outstanding - Days Payable Outstanding, measuring how many days cash is tied up in operations.

Which short-term investment instrument is typically issued by the US government and matures in one year or less?

Answer: Treasury Bills (T-Bills)

Treasury Bills are short-term US government debt securities with maturities of 4, 8, 13, 26, or 52 weeks, considered among the safest and most liquid short-term investments.

What is a lockbox system used for in cash management?

Answer: Accelerating collection of customer payments by routing receipts to a bank P.O. box

A lockbox system directs customers to mail payments to a post office box managed by the company's bank, which processes receipts daily, speeding up deposit and reducing float.

What does 'float' refer to in the context of cash management?

Answer: The difference between the book balance and bank balance due to timing of transactions

Float is the temporary difference between the company's book cash balance and its bank balance, arising from checks in transit, processing delays, or uncollected deposits.