Treasury management Exam Questions with Detailed Answers
Section 1: Core Treasury Concepts & Cash Forecasting
1. The primary strategic objective of treasury management is to:
a) Maximize the return on corporate investments.
b) Ensure the company can meet its financial obligations at all times.
c) Minimize the company's tax liability.
d) Manage relationships with commercial banks.
Answer: b) Ensure the company can meet its financial obligations at all times.
Explanation: While (a) and (c) are important tactical goals, the fundamental, strategic
purpose of treasury is liquidity management ensuring there is sufficient cash available
to meet operational, strategic, and debt obligations, thereby mitigating the risk of
insolvency.
2. A 13-week cash flow forecast is primarily used for:
a) Long-term capital budgeting and strategic planning.
b) Filing quarterly financial statements with the SEC.
c) Short-term liquidity management and operational decision-making.
d) Calculating annual corporate tax liabilities.
Answer: c) Short-term liquidity management and operational decision-making.
Explanation: A 13-week (or weekly) cash forecast is a tactical tool. It helps the treasury
team manage daily liquidity, identify potential shortfalls to arrange funding, and spot
surpluses for short-term investment. It is not long-term enough for (a) or formal enough
for (b).
3. The "cash conversion cycle" (CCC) measures:
a) The efficiency of a company's investment portfolio.
b) The speed at which a company collects its accounts receivable.
c) The time it takes for a company to convert its investments in inventory and other
, resources into cash flows from sales.
d) The average maturity of a company's debt.
Answer: c) The time it takes for a company to convert its investments in inventory
and other resources into cash flows from sales.
Explanation: The CCC is a key metric of working capital efficiency. It is calculated as:
Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable
Outstanding (DPO). A shorter cycle indicates more efficient management of working
capital.
4. Which cash forecasting technique uses a statistical model based on historical
cash flows and projected variables?
a) The Receipts and Disbursements Method
b) The Distribution Method
c) The Adjusted Net Income Method
d) The Econometric Modeling Method
Answer: d) The Econometric Modeling Method
Explanation: Econometric models use statistical analysis to project future cash flows
based on the relationship between cash and other economic or company-specific
variables (e.g., sales growth, interest rates). This is a more sophisticated approach
compared to simple receipts and disbursements.
Section 2: Cash Collection & Disbursement Systems
5. A lockbox system is designed primarily to:
a) Slow down the disbursement of funds to improve float.
b) Bypass the banking system for large transactions.
c) Reduce collection float by having customers send payments directly to a bank-
controlled PO box.
d) Secure physical cash holdings at company headquarters.
, Answer: c) Reduce collection float by having customers send payments directly
to a bank-controlled PO box.
Explanation: A lockbox accelerates collections by reducing mail, processing, and
availability float. The bank collects, processes, and deposits checks directly, getting
funds into the company's account faster than if they were sent to the company's office.
6. Which of the following is an electronic disbursement tool that allows a
company to strategically time its payments to optimize cash flow?
a) Automated Clearing House (ACH) Credits
b) Controlled Disbursement
c) Depository Transfer Checks (DTCs)
d) Wire Transfers
Answer: b) Controlled Disbursement
Explanation: A controlled disbursement account provides early-morning notification of
the total dollar amount of checks that will be presented for payment that day. This
allows the treasurer to fund the account precisely, minimizing idle balances and
maximizing investment potential.
7. The primary advantage of using an Automated Clearing House (ACH) payment
over a paper check for a corporation is:
a) Higher transaction limits.
b) Faster availability of funds for the recipient.
c) Lower cost, greater security, and better automation.
d) Universal international acceptance.
Answer: c) Lower cost, greater security, and better automation.
Explanation: While ACH is faster than mail, its key advantages are cost-efficiency,
reduced risk of check fraud, and the ability to seamlessly integrate with accounting
systems for automated reconciliation, unlike manual check processing.
Section 1: Core Treasury Concepts & Cash Forecasting
1. The primary strategic objective of treasury management is to:
a) Maximize the return on corporate investments.
b) Ensure the company can meet its financial obligations at all times.
c) Minimize the company's tax liability.
d) Manage relationships with commercial banks.
Answer: b) Ensure the company can meet its financial obligations at all times.
Explanation: While (a) and (c) are important tactical goals, the fundamental, strategic
purpose of treasury is liquidity management ensuring there is sufficient cash available
to meet operational, strategic, and debt obligations, thereby mitigating the risk of
insolvency.
2. A 13-week cash flow forecast is primarily used for:
a) Long-term capital budgeting and strategic planning.
b) Filing quarterly financial statements with the SEC.
c) Short-term liquidity management and operational decision-making.
d) Calculating annual corporate tax liabilities.
Answer: c) Short-term liquidity management and operational decision-making.
Explanation: A 13-week (or weekly) cash forecast is a tactical tool. It helps the treasury
team manage daily liquidity, identify potential shortfalls to arrange funding, and spot
surpluses for short-term investment. It is not long-term enough for (a) or formal enough
for (b).
3. The "cash conversion cycle" (CCC) measures:
a) The efficiency of a company's investment portfolio.
b) The speed at which a company collects its accounts receivable.
c) The time it takes for a company to convert its investments in inventory and other
, resources into cash flows from sales.
d) The average maturity of a company's debt.
Answer: c) The time it takes for a company to convert its investments in inventory
and other resources into cash flows from sales.
Explanation: The CCC is a key metric of working capital efficiency. It is calculated as:
Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable
Outstanding (DPO). A shorter cycle indicates more efficient management of working
capital.
4. Which cash forecasting technique uses a statistical model based on historical
cash flows and projected variables?
a) The Receipts and Disbursements Method
b) The Distribution Method
c) The Adjusted Net Income Method
d) The Econometric Modeling Method
Answer: d) The Econometric Modeling Method
Explanation: Econometric models use statistical analysis to project future cash flows
based on the relationship between cash and other economic or company-specific
variables (e.g., sales growth, interest rates). This is a more sophisticated approach
compared to simple receipts and disbursements.
Section 2: Cash Collection & Disbursement Systems
5. A lockbox system is designed primarily to:
a) Slow down the disbursement of funds to improve float.
b) Bypass the banking system for large transactions.
c) Reduce collection float by having customers send payments directly to a bank-
controlled PO box.
d) Secure physical cash holdings at company headquarters.
, Answer: c) Reduce collection float by having customers send payments directly
to a bank-controlled PO box.
Explanation: A lockbox accelerates collections by reducing mail, processing, and
availability float. The bank collects, processes, and deposits checks directly, getting
funds into the company's account faster than if they were sent to the company's office.
6. Which of the following is an electronic disbursement tool that allows a
company to strategically time its payments to optimize cash flow?
a) Automated Clearing House (ACH) Credits
b) Controlled Disbursement
c) Depository Transfer Checks (DTCs)
d) Wire Transfers
Answer: b) Controlled Disbursement
Explanation: A controlled disbursement account provides early-morning notification of
the total dollar amount of checks that will be presented for payment that day. This
allows the treasurer to fund the account precisely, minimizing idle balances and
maximizing investment potential.
7. The primary advantage of using an Automated Clearing House (ACH) payment
over a paper check for a corporation is:
a) Higher transaction limits.
b) Faster availability of funds for the recipient.
c) Lower cost, greater security, and better automation.
d) Universal international acceptance.
Answer: c) Lower cost, greater security, and better automation.
Explanation: While ACH is faster than mail, its key advantages are cost-efficiency,
reduced risk of check fraud, and the ability to seamlessly integrate with accounting
systems for automated reconciliation, unlike manual check processing.
