FIN3703
Corporate Treasury Management
2025-Assignment 01-S1 EXPECTED SOLUTIONS
SECTION A (26 MARKS)
QUESTION 1 (2)
Treasury management is executed in any business, irrespective of its size, structure,
or industry. Which of the following activities does not fall directly under the corporate
treasury management functions in business?
a. The management of cash, liquidity, and banking relations.
b. The management of the cost of capital, capital structure and dividend pay-out.
c. The management of financial, operational, and strategic risks.
d. Management of cash forecasting, cash surpluses and cash deficits.
Circle the correct option below:
1. a and b
2. a and c
3. b and c
4. a and d
NOTE: Circle one option only. Students who will circle more than one option
will not be allocated marks.
QUESTION 2 (2)
Which of the following statement(s) below are correct about the interest rate swaps.
An interest rate swaps involves counterparties who want to exchange …
a. a floating rate committement for a fixed rate.
b. long-term debt for equity.
c. short-term debt for long-term debt.
, d. fixed assets with current assets
Circle the correct option below:
1. a
2. a and c
3. a and b
4. b and d
NB: Circle one option only. Students who will circle more than one option
will not be allocated marks.
FOR QUESTIONS 3 TO 6, REFER TO THE FOLLOWING INFORMATION:
BestDairy Holding is a dairy-and-fruit juice blend holding company that was launched
in South Africa by Parmalat in 2005. Parmalat has four subsidiaries, one in Limpopo,
one in Gauteng, one in Kwazulu-Natal (KZN) and one in Northwest and its
headquarters are situated in Midrand where all finances are handled. The four
subsidiaries have individual bank account with different banks. Each subsidiary can
finance its deficit with an overdraft facility at a rate of 10% and invest the surplus cash,
which will earn the company 7% in interest.
The Master and subsidiaries’ bank accounts reflect the following balances:
The Limpopo subsidiary has a debit balance of R400 000.
The Gauteng subsidiary has a credit balance of -R350 000.
The KZN subsidiary has a debit balance of R200 000.
The Northwest subsidiary has a debit balance of R100 000.
The master account has a debit balance of R1 000 000.
QUESTION 3 (2)
Suppose the Gauteng subsidiary is informed that it must finance its cash deficit with a
revolving credit from Capitec Bank. Calculate the interest that the subsidiary will pay
should it uses the funds for 29 days and that the interest is calculated on the daily
basis the box provided below. (Use 365 days.)
, Debit balance (amount borrowed): R350,000
Interest rate: 10% per year
Days borrowed: 29 days
Daily interest rate: 10% / 365 = 0. = 0.0002739726
Interest cost: R350,000 * 0.0002739726 * 29 = R2763.01
QUESTION 4 (2)
If Parmalat does not arrange for cash pooling and every subsidiary handles its cash
separately with its individual bank account. Calculate the net or combined interest
amount payable/earned by the four subsidiaries in the box provided below.
(Assume the funds remain static for a year)
Interest rate Interest
LIMPOPO -400000 10% -40000
GAUTENG 350000 7% 24500
KZN -200000 10% -20000
NORTHWEST -100000 10% -10000
Net Interest payable -45500
QUESTION 5 (2)
Suppose the central treasury at Midrand decides to arrange with the subsidiaries’
banks to pool all its cash balances in a central master account daily leaving the
subsidiary accounts with zero balances, calculate the amount that will represents the
balance of the master account in the box provided below.
Corporate Treasury Management
2025-Assignment 01-S1 EXPECTED SOLUTIONS
SECTION A (26 MARKS)
QUESTION 1 (2)
Treasury management is executed in any business, irrespective of its size, structure,
or industry. Which of the following activities does not fall directly under the corporate
treasury management functions in business?
a. The management of cash, liquidity, and banking relations.
b. The management of the cost of capital, capital structure and dividend pay-out.
c. The management of financial, operational, and strategic risks.
d. Management of cash forecasting, cash surpluses and cash deficits.
Circle the correct option below:
1. a and b
2. a and c
3. b and c
4. a and d
NOTE: Circle one option only. Students who will circle more than one option
will not be allocated marks.
QUESTION 2 (2)
Which of the following statement(s) below are correct about the interest rate swaps.
An interest rate swaps involves counterparties who want to exchange …
a. a floating rate committement for a fixed rate.
b. long-term debt for equity.
c. short-term debt for long-term debt.
, d. fixed assets with current assets
Circle the correct option below:
1. a
2. a and c
3. a and b
4. b and d
NB: Circle one option only. Students who will circle more than one option
will not be allocated marks.
FOR QUESTIONS 3 TO 6, REFER TO THE FOLLOWING INFORMATION:
BestDairy Holding is a dairy-and-fruit juice blend holding company that was launched
in South Africa by Parmalat in 2005. Parmalat has four subsidiaries, one in Limpopo,
one in Gauteng, one in Kwazulu-Natal (KZN) and one in Northwest and its
headquarters are situated in Midrand where all finances are handled. The four
subsidiaries have individual bank account with different banks. Each subsidiary can
finance its deficit with an overdraft facility at a rate of 10% and invest the surplus cash,
which will earn the company 7% in interest.
The Master and subsidiaries’ bank accounts reflect the following balances:
The Limpopo subsidiary has a debit balance of R400 000.
The Gauteng subsidiary has a credit balance of -R350 000.
The KZN subsidiary has a debit balance of R200 000.
The Northwest subsidiary has a debit balance of R100 000.
The master account has a debit balance of R1 000 000.
QUESTION 3 (2)
Suppose the Gauteng subsidiary is informed that it must finance its cash deficit with a
revolving credit from Capitec Bank. Calculate the interest that the subsidiary will pay
should it uses the funds for 29 days and that the interest is calculated on the daily
basis the box provided below. (Use 365 days.)
, Debit balance (amount borrowed): R350,000
Interest rate: 10% per year
Days borrowed: 29 days
Daily interest rate: 10% / 365 = 0. = 0.0002739726
Interest cost: R350,000 * 0.0002739726 * 29 = R2763.01
QUESTION 4 (2)
If Parmalat does not arrange for cash pooling and every subsidiary handles its cash
separately with its individual bank account. Calculate the net or combined interest
amount payable/earned by the four subsidiaries in the box provided below.
(Assume the funds remain static for a year)
Interest rate Interest
LIMPOPO -400000 10% -40000
GAUTENG 350000 7% 24500
KZN -200000 10% -20000
NORTHWEST -100000 10% -10000
Net Interest payable -45500
QUESTION 5 (2)
Suppose the central treasury at Midrand decides to arrange with the subsidiaries’
banks to pool all its cash balances in a central master account daily leaving the
subsidiary accounts with zero balances, calculate the amount that will represents the
balance of the master account in the box provided below.
