#1
Which of the following is a primary goal of cash management in business?
Minimizing cash holdings
ExplanationOptimizing cash levels to reduce holding costs and improve financial efficiency.
#2
Which of the following is an advantage of maintaining a minimum cash balance in business?
Reduced risk of insolvency
ExplanationEnsures a safety net against financial crises and potential insolvency.
#3
What is the purpose of a cash reserve policy in cash management?
To ensure funds are available for emergencies
ExplanationEstablishes guidelines for maintaining a reserve to handle unforeseen financial challenges.
#4
What is the primary purpose of a cash concentration system in cash management?
To pool cash from different subsidiaries
ExplanationCentralizing funds from various business units for efficient cash control.
#5
Which of the following is a characteristic of an effective cash management system?
Balancing liquidity and profitability
ExplanationAchieving equilibrium between maintaining liquidity and maximizing profitability.
#6
What is the Cash Conversion Cycle (CCC) in cash management?
The time it takes to convert cash into inventory and then back into cash
ExplanationMeasuring the duration from cash expenditure on inventory to the receipt of cash from its eventual sale.
#7
Which of the following is NOT a cash management technique?
Zero-based budgeting
ExplanationZero-based budgeting is a budgeting technique, not a cash management strategy.
#8
What is the purpose of a cash flow statement in cash management?
To analyze cash inflows and outflows over a specific period
ExplanationProvides a detailed breakdown of cash movements, aiding financial analysis.
#9
Which cash management technique involves transferring excess funds from one account to another to maximize interest earnings?
Sweep accounts
ExplanationAutomated movement of funds to optimize interest income by consolidating balances.
#10
Which of the following is a disadvantage of a just-in-time (JIT) inventory system in cash management?
Increased cash tied up in inventory
ExplanationRisk of higher cash investment due to JIT's focus on minimal inventory levels.
#11
What does the term 'cash concentration' mean in cash management?
Combining cash from different subsidiaries for better interest rates
ExplanationAggregating funds from various business units to enhance interest-earning opportunities.
#12
What is the primary purpose of a cash budget in cash management?
To forecast cash inflows and outflows
ExplanationPlanning and predicting cash movements to ensure adequate funds are available.
#13
In the context of cash management, what does the term 'disbursement float' refer to?
The delay between issuing a check and it being deposited in the bank
ExplanationTime gap between check issuance and its clearance, affecting actual cash outflows.
#14
What is the primary goal of liquidity management in cash management?
Ensuring availability of funds to meet short-term obligations
ExplanationFocuses on maintaining sufficient liquid assets for immediate financial needs.
#15
In the context of cash management, what does the term 'concentration banking' refer to?
Pooling cash from various accounts into a central account
ExplanationCentralizing cash from multiple sources for more efficient management.
#16
In the context of cash management, what is the purpose of a cash flow forecast?
To predict future cash inflows and outflows
ExplanationAnticipating upcoming cash movements to facilitate proactive financial decisions.
#17
Which cash management technique involves delaying payments to suppliers without damaging the company's relationship with them?
Extended payment terms
ExplanationNegotiating longer payment periods with suppliers to optimize cash utilization.