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Question 1 of 30
1. Question
Which of the following statements is true regarding processing payments in-house?
I. Cash managers are responsible for the inefficient but cost effective collection, disbursement, and concentration of the firm’s yearly cash
II. With the continued reliance on cash for payment, a significant portion of cash management involves maximizing ‘float’
III. Inherent in the check payment system is mail float (if the check is mailed), processing float, and availability float
IV. To monitor customer relations more efficiently, certain larger firms with high volume, small value payments find it more advantageous to process those payments in houseCorrect
Processing payments in-house
Cash managers are responsible for the efficient and cost effective collection, disbursement, and concentration of the firm’s daily cash. With the continued reliance on checks for payment, a significant portion of cash management involves minimizing ‘float’ (the delay between payment and availability of funds). Inherent in the check payment system is mail float (if the check is mailed), processing float, and availability float. To monitor customer relations more efficiently, certain larger firms (i.e. utilities) with high volume, small value payments find it more advantageous to process those payments in house.Incorrect
Processing payments in-house
Cash managers are responsible for the efficient and cost effective collection, disbursement, and concentration of the firm’s daily cash. With the continued reliance on checks for payment, a significant portion of cash management involves minimizing ‘float’ (the delay between payment and availability of funds). Inherent in the check payment system is mail float (if the check is mailed), processing float, and availability float. To monitor customer relations more efficiently, certain larger firms (i.e. utilities) with high volume, small value payments find it more advantageous to process those payments in house. -
Question 2 of 30
2. Question
Which of the following statements is true regarding processing payments in-house?
I. To monitor customer relations more efficiently, certain larger firms with high volume, small value payments find it more advantageous to process those payments in house
II. The preservation of customer relations might come at the expense of decreased mail and unavailability float
III. Mail float is decreased because payments are not sent to one location but can only be posted when they are physically received
IV. As the firm is processing payments in-house, access to the depository institution is more limited, so the chance for availability float is increasedCorrect
Processing payments in-house
To monitor customer relations more efficiently, certain larger firms (i.e. utilities) with high volume, small value payments find it more advantageous to process those payments in house. This is especially true if the administrative and staff costs of the in-house processing is less than outsourcing processing. However, the preservation of customer relations might come at the expense of increased mail and availability float. Mail float is increased because payments are only sent to one location and can only be posted when they are physically received. Because the firm is processing payments in-house, access to the depository institution is more limited, so the chance for availability float is increased.Incorrect
Processing payments in-house
To monitor customer relations more efficiently, certain larger firms (i.e. utilities) with high volume, small value payments find it more advantageous to process those payments in house. This is especially true if the administrative and staff costs of the in-house processing is less than outsourcing processing. However, the preservation of customer relations might come at the expense of increased mail and availability float. Mail float is increased because payments are only sent to one location and can only be posted when they are physically received. Because the firm is processing payments in-house, access to the depository institution is more limited, so the chance for availability float is increased. -
Question 3 of 30
3. Question
Which of the following statements is true regarding Lockbox processing system?
I. A significant portion of cash management involves maximizing ‘float’ that is unusual in the check payment system
II. This includes mail float, processing float, and availability float. Most firms minimize float by using a lockbox processing system
III. A lockbox can be a single firm that has multiple locations that can each receive payments
IV. It can be a collection of firms that can each receive paymentsCorrect
Lockbox processing system
A significant portion of cash management involves minimizing ‘float’ (the delay between payment and availability of funds) that is inherent in the check payment system. This includes mail float (if the check is mailed), processing float, and availability float. Most firms minimize float by using a lockbox processing system. A lockbox can be a single firm that has multiple locations that can each receive payments or it can be a collection of firms that can each receive payments.Incorrect
Lockbox processing system
A significant portion of cash management involves minimizing ‘float’ (the delay between payment and availability of funds) that is inherent in the check payment system. This includes mail float (if the check is mailed), processing float, and availability float. Most firms minimize float by using a lockbox processing system. A lockbox can be a single firm that has multiple locations that can each receive payments or it can be a collection of firms that can each receive payments. -
Question 4 of 30
4. Question
Which of the following statements is true regarding Lockbox processing system?
I. The lockbox processes the payments, consolidates them, and then deposits it in the appropriate account
II. Because there is only one lockbox location and it is strategically placed to minimize delivery delays, mail float is reduced significantly
III. Because a lockbox is setup to operate continuously (i.e. 24 hours a day, 7days a week) processing float is reduced
IV. Pre-arranged agreements that facilitates direct access with financial institutions reduces availability floatCorrect
Lockbox processing system
The lockbox processes the payments, consolidates them, and then deposits it in the appropriate account. Because there are multiple lockbox locations and they are strategically placed to minimize delivery delays, mail float is reduced significantly. Also, because a lockbox is setup to operate continuously (i.e. 24 hours a day, 7days a week) processing float is reduced. Pre-arranged agreements that facilitates direct access with financial institutions reduces availability float.Incorrect
Lockbox processing system
The lockbox processes the payments, consolidates them, and then deposits it in the appropriate account. Because there are multiple lockbox locations and they are strategically placed to minimize delivery delays, mail float is reduced significantly. Also, because a lockbox is setup to operate continuously (i.e. 24 hours a day, 7days a week) processing float is reduced. Pre-arranged agreements that facilitates direct access with financial institutions reduces availability float. -
Question 5 of 30
5. Question
Which of the following statements is true regarding lockbox processing system?
I. Lockbox systems can either be wholesale or retail
II. wholesale means the large value transactions can result in substantial losses due to float and retail means the high volume of transactions can result in losses due to per item costs
III. Combining elements of the two systems includes the use of sophisticated data capture technology
IV. It can either default data transmission through electronic intervention or inefficiently process standardized high volume itemsCorrect
Lockbox processing system
Lockbox systems can either be wholesale, where the large value transactions can result in substantial losses due to float, or retail where the high volume of transactions can result in losses due to per item costs. Combining elements of the two systems includes the use of sophisticated data capture technology that can either customize data transmission through manual intervention or efficiently process standardized high volume items. Since the passage of the Check Clearing Act of 2003 (Check 21) which permits checks to be truncated, that is, to be substituted with an image replacement document (IRD), electronic payment and collection systems are increasingly replacing the check payment systems.Incorrect
Lockbox processing system
Lockbox systems can either be wholesale, where the large value transactions can result in substantial losses due to float, or retail where the high volume of transactions can result in losses due to per item costs. Combining elements of the two systems includes the use of sophisticated data capture technology that can either customize data transmission through manual intervention or efficiently process standardized high volume items. Since the passage of the Check Clearing Act of 2003 (Check 21) which permits checks to be truncated, that is, to be substituted with an image replacement document (IRD), electronic payment and collection systems are increasingly replacing the check payment systems. -
Question 6 of 30
6. Question
Which of the following statements is true regarding lockbox processing system?
I. Electronic payment and collection systems are increasingly going together with the check payment systems
II. Checks can now be converted at the point of sales but the information transmitted through the ACH later
III. Another alternative to lockbox payment system are the electronic bill presentment and payment (EBPP) and electronic invoice presentment and payment (EIPP) systems
IV. These are website payment systems that enable firms to make payments or submit invoices online via a websiteCorrect
Lockbox processing system
Since the passage of the Check Clearing Act of 2003 (Check 21) which permits checks to be truncated, that is, to be substituted with an image replacement document (IRD), electronic payment and collection systems are increasingly replacing the check payment systems. Checks can now be converted at the point of purchase and the information transmitted through the ACH immediately. Another alternative to lockbox payment system are the electronic bill presentment and payment (EBPP) and electronic invoice presentment and payment (EIPP) systems. These are website payment systems that enable firms to make payments or submit invoices online via a website.Incorrect
Lockbox processing system
Since the passage of the Check Clearing Act of 2003 (Check 21) which permits checks to be truncated, that is, to be substituted with an image replacement document (IRD), electronic payment and collection systems are increasingly replacing the check payment systems. Checks can now be converted at the point of purchase and the information transmitted through the ACH immediately. Another alternative to lockbox payment system are the electronic bill presentment and payment (EBPP) and electronic invoice presentment and payment (EIPP) systems. These are website payment systems that enable firms to make payments or submit invoices online via a website. -
Question 7 of 30
7. Question
Which of the following statements is true regarding concentration account?
I. When a firm receives payments via its single location, the location eventually transfers its accumulated funds to a concentration account in a designated depository institution
II. The funds can be transferred using electronic depository transfer (EDT) via ACH or the more expensive wire transfer
III. Wire fund transfers are immediate and final whereas EDT fund transfers can be delayed
IV. The main reason for concentrating funds is to avoid excess balance in the recipient’s accountCorrect
Concentration account
When a firm receives payments via its multiple locations, each location eventually transfers their accumulated funds to a concentration account in a designated depository institution. The funds can be transferred using electronic depository transfer (EDT) via ACH or the more expensive wire transfer. Wire fund transfers are immediate and final whereas EDT fund transfers can be delayed. The main reason for concentrating funds is to avoid excess balance in the recipient’s account. Since funds can be used to generate income it is a common practice for firm’s to maintain zero balance accounts (ZBAs).Incorrect
Concentration account
When a firm receives payments via its multiple locations, each location eventually transfers their accumulated funds to a concentration account in a designated depository institution. The funds can be transferred using electronic depository transfer (EDT) via ACH or the more expensive wire transfer. Wire fund transfers are immediate and final whereas EDT fund transfers can be delayed. The main reason for concentrating funds is to avoid excess balance in the recipient’s account. Since funds can be used to generate income it is a common practice for firm’s to maintain zero balance accounts (ZBAs). -
Question 8 of 30
8. Question
Which of the following statements is true regarding concentration account?
I. The main reason for concentrating funds is to avoid excess balance in the recipient’s account
II. Since funds can’t be used to generate income, it is an uncommon practice for firm’s to maintain zero balance accounts (ZBAs)
III. The main causes for an excess balance to occur are reporting delays and clearing delays
IV. The depository institution will maintain ZBAs free, for wire transfers, overdrafts, and other tasks related to the concentration accountCorrect
Concentration account
The main reason for concentrating funds is to avoid excess balance in the recipient’s account. Since funds can be used to generate income it is a common practice for firm’s to maintain zero balance accounts (ZBAs). These are accounts that automatically transfer funds that are in excess of what is needed to cover payments paid from the account. The main causes for an excess balance to occur are reporting delays and clearing delays. The depository institution will charge a fee for maintaining ZBAs, for wire transfers, overdrafts, and other tasks related to the concentration account. These fees can be reduced by efficient cash management including improved timing of fund transfers and minimizing the frequency of transfers.Incorrect
Concentration account
The main reason for concentrating funds is to avoid excess balance in the recipient’s account. Since funds can be used to generate income it is a common practice for firm’s to maintain zero balance accounts (ZBAs). These are accounts that automatically transfer funds that are in excess of what is needed to cover payments paid from the account. The main causes for an excess balance to occur are reporting delays and clearing delays. The depository institution will charge a fee for maintaining ZBAs, for wire transfers, overdrafts, and other tasks related to the concentration account. These fees can be reduced by efficient cash management including improved timing of fund transfers and minimizing the frequency of transfers. -
Question 9 of 30
9. Question
Which of the following statements is true regarding reducing excess balance?
I. Minimizing excess balance in branch accounts makes more funds available in the concentration account for investment or other cost reduction purposes
II. Imposing a threshold concentration that automatically transfers funds once a certain balance is reached is useful for avoiding excess balance
III. There is no aggressive and riskier method of reducing excess balance
IV. One aggressive method is the practice of anticipating availabilityCorrect
Reducing excess balance
Minimizing excess balance in branch accounts makes more funds available in the concentration account for investment or other cost reduction purposes. Imposing a threshold concentration that automatically transfers funds once a certain balance is reached is useful for avoiding excess balance. There are more aggressive and riskier methods of reducing excess balance. One aggressive method is the practice of anticipating availability.Incorrect
Reducing excess balance
Minimizing excess balance in branch accounts makes more funds available in the concentration account for investment or other cost reduction purposes. Imposing a threshold concentration that automatically transfers funds once a certain balance is reached is useful for avoiding excess balance. There are more aggressive and riskier methods of reducing excess balance. One aggressive method is the practice of anticipating availability. -
Question 10 of 30
10. Question
Which of the following statements is true regarding reducing excess balance?
I. Deposits are made and the branch initiates transfer to the concentration account before the originating depository institution has released the funds needed for the deposit
II. It is safe because it can’t cause overdrafts, especially if funds are transferred using a wire transfer
III. A similar and even riskier practice, deposit anticipation, is used when the branch anticipates that funds that have been promised will be deposited
IV. This is risky because the receipts typically have delayed availability and are not necessarily finalCorrect
Reducing excess balance
Deposits are made and the branch initiates transfer to the concentration account before the originating depository institution has released the funds needed for the deposit. It is risky because it can cause overdrafts, especially if funds are transferred using a wire transfer. A similar and even riskier practice, deposit anticipation, is used when the branch anticipates that funds that have been promised (i.e. weekend retail receipts) will be deposited. This is risky because the receipts typically have delayed availability and are not necessarily final.Incorrect
Reducing excess balance
Deposits are made and the branch initiates transfer to the concentration account before the originating depository institution has released the funds needed for the deposit. It is risky because it can cause overdrafts, especially if funds are transferred using a wire transfer. A similar and even riskier practice, deposit anticipation, is used when the branch anticipates that funds that have been promised (i.e. weekend retail receipts) will be deposited. This is risky because the receipts typically have delayed availability and are not necessarily final. -
Question 11 of 30
11. Question
Which of the following statements is true regarding disbursement methods?
I. Because of the decreasing incidence of fraudulent checks and other abuses, more uncontrolled disbursement systems are being developed
II. The use of a financial service provider (FSP) to perform A/P responsibilities is common
III. A firm establishes an account with the FSP who maintains a list of the firm’s recipients
IV. The FSP follows the firm’s specific disbursement instructions regarding what payments are to be made, to whom, and whenCorrect
Disbursement methods
Because of the increasing incidence of fraudulent checks and other abuses, more controlled disbursement systems are being developed. The use of a financial service provider (FSP) to perform A/P responsibilities is common. A firm establishes an account with the FSP who maintains a list of the firm’s recipients. The FSP follows the firm’s specific disbursement instructions regarding what payments are to be made, to whom, and when.Incorrect
Disbursement methods
Because of the increasing incidence of fraudulent checks and other abuses, more controlled disbursement systems are being developed. The use of a financial service provider (FSP) to perform A/P responsibilities is common. A firm establishes an account with the FSP who maintains a list of the firm’s recipients. The FSP follows the firm’s specific disbursement instructions regarding what payments are to be made, to whom, and when. -
Question 12 of 30
12. Question
Which of the following statements is true regarding disbursement methods?
I. Firms can issue sales procurement cards (p- cards) which are a kind of debit card
II. There is no restriction on what can be purchased and who can use it
III. Usually an employee is authorized to use the p-card for specific purchases
IV. P-cards expedite procurement of materials and payment to the supplierCorrect
Disbursement methods
Firms can also issue purchase procurement cards (p- cards) which are a kind of credit card. There are restrictions on what can be purchased and who can use it. Usually an employee is authorized to use the p-card for specific purchases. P-cards expedite procurement of materials and payment to the supplier. This improves supplier relations and tracks expenditures more efficiently. Optical scanning makes it easy to scan and digitally record checks the firm does send or receive. This makes them easier to track and identify errors or possible fraud.Incorrect
Disbursement methods
Firms can also issue purchase procurement cards (p- cards) which are a kind of credit card. There are restrictions on what can be purchased and who can use it. Usually an employee is authorized to use the p-card for specific purchases. P-cards expedite procurement of materials and payment to the supplier. This improves supplier relations and tracks expenditures more efficiently. Optical scanning makes it easy to scan and digitally record checks the firm does send or receive. This makes them easier to track and identify errors or possible fraud. -
Question 13 of 30
13. Question
Which of the following statements is true regarding disbursement methods?
I. P-cards expedite procurement of materials and payment to the supplier
II. This improves supplier relations and tracks expenditures more efficiently
III. Optical scanning makes it hard to scan and digitally record checks the firm does not send or receive
IV. This makes them harder to track and identify errors or possible fraudCorrect
Disbursement methods
P-cards expedite procurement of materials and payment to the supplier. This improves supplier relations and tracks expenditures more efficiently. Optical scanning makes it easy to scan and digitally record checks the firm does send or receive. This makes them easier to track and identify errors or possible fraud.Incorrect
Disbursement methods
P-cards expedite procurement of materials and payment to the supplier. This improves supplier relations and tracks expenditures more efficiently. Optical scanning makes it easy to scan and digitally record checks the firm does send or receive. This makes them easier to track and identify errors or possible fraud. -
Question 14 of 30
14. Question
Which of the following statements is true regarding controlled disbursement account?
I. Since the Federal Reserve clears checks of the banks that have accounts with them, they will submit a cash summary letter early in the morning of each business day to respective banks
II. The Federal Reserve Bank will also inform the bank of the checks that will be arriving that day for presentment
III. This is the daily presentment where some banks have daily presentments in excess of $10 million
IV. The Federal Reserve program known as High-Dollar Group Sort (HDGS) prohibits the bank to receive an automatic first presentment later in the morningCorrect
Controlled disbursement account
Since the Federal Reserve clears checks of the banks that have accounts with them, they will submit a cash summary letter early in the morning of each business day to respective banks. The Federal Reserve Bank will also inform the bank of the checks that will be arriving that day for presentment. This is the daily presentment. Some banks have daily presentments in excess of $10 million. In this case, the Federal Reserve program known as High-Dollar Group Sort (HDGS) permits the bank to receive an automatic second presentment later in the morning.Incorrect
Controlled disbursement account
Since the Federal Reserve clears checks of the banks that have accounts with them, they will submit a cash summary letter early in the morning of each business day to respective banks. The Federal Reserve Bank will also inform the bank of the checks that will be arriving that day for presentment. This is the daily presentment. Some banks have daily presentments in excess of $10 million. In this case, the Federal Reserve program known as High-Dollar Group Sort (HDGS) permits the bank to receive an automatic second presentment later in the morning. -
Question 15 of 30
15. Question
Which of the following statements is true regarding controlled disbursement account?
I. When the bank receives the information, it can ignores its daily cash needs
II. Then it can inform employees that have controlled disbursement accounts of the amount of funds that will be needed to support the incoming checks
III. The companies then authorize transfer from the concentration account to the controlled disbursement account
IV. A zero balance account (ZBA) is one that maintains a zero balance and can be used for disbursements or collectionsCorrect
Controlled disbursement account
Once the bank receives this information, it can assess its daily cash needs. Then it can inform companies that have controlled disbursement accounts of the amount of funds that will be needed to support the incoming checks. The companies then authorize transfer from the concentration account to the controlled disbursement account. To free up the cash for other investment purposes, controlled disbursement accounts are only funded as needed. A zero balance account (ZBA) is one that maintains a zero balance and can be used for disbursements or collections.Incorrect
Controlled disbursement account
Once the bank receives this information, it can assess its daily cash needs. Then it can inform companies that have controlled disbursement accounts of the amount of funds that will be needed to support the incoming checks. The companies then authorize transfer from the concentration account to the controlled disbursement account. To free up the cash for other investment purposes, controlled disbursement accounts are only funded as needed. A zero balance account (ZBA) is one that maintains a zero balance and can be used for disbursements or collections. -
Question 16 of 30
16. Question
Which of the following statements is true regarding reducing excess balance?
Correct
Reducing excess balance
Minimizing excess balance in branch accounts makes more funds available in the concentration account for investment or other cost reduction purposes. Imposing a threshold concentration that automatically transfers funds once a certain balance is reached is useful for avoiding excess balance. There are more aggressive and riskier methods of reducing excess balance. One aggressive method is the practice of anticipating availability.Incorrect
Reducing excess balance
Minimizing excess balance in branch accounts makes more funds available in the concentration account for investment or other cost reduction purposes. Imposing a threshold concentration that automatically transfers funds once a certain balance is reached is useful for avoiding excess balance. There are more aggressive and riskier methods of reducing excess balance. One aggressive method is the practice of anticipating availability. -
Question 17 of 30
17. Question
Which of the following statements is true regarding reducing excess balance?
Correct
Reducing excess balance
Deposits are made and the branch initiates transfer to the concentration account before the originating depository institution has released the funds needed for the deposit. It is risky because it can cause overdrafts, especially if funds are transferred using a wire transfer. A similar and even riskier practice, deposit anticipation, is used when the branch anticipates that funds that have been promised (i.e. weekend retail receipts) will be deposited. This is risky because the receipts typically have delayed availability and are not necessarily final.Incorrect
Reducing excess balance
Deposits are made and the branch initiates transfer to the concentration account before the originating depository institution has released the funds needed for the deposit. It is risky because it can cause overdrafts, especially if funds are transferred using a wire transfer. A similar and even riskier practice, deposit anticipation, is used when the branch anticipates that funds that have been promised (i.e. weekend retail receipts) will be deposited. This is risky because the receipts typically have delayed availability and are not necessarily final. -
Question 18 of 30
18. Question
Which of the following statements is true regarding disbursement methods?
Correct
Disbursement methods
Because of the increasing incidence of fraudulent checks and other abuses, more controlled disbursement systems are being developed. The use of a financial service provider (FSP) to perform A/P responsibilities is common. A firm establishes an account with the FSP who maintains a list of the firm’s recipients. The FSP follows the firm’s specific disbursement instructions regarding what payments are to be made, to whom, and when.Incorrect
Disbursement methods
Because of the increasing incidence of fraudulent checks and other abuses, more controlled disbursement systems are being developed. The use of a financial service provider (FSP) to perform A/P responsibilities is common. A firm establishes an account with the FSP who maintains a list of the firm’s recipients. The FSP follows the firm’s specific disbursement instructions regarding what payments are to be made, to whom, and when. -
Question 19 of 30
19. Question
Which of the following statements is true regarding disbursement methods?
Correct
Disbursement methods
Firms can also issue purchase procurement cards (p- cards) which are a kind of credit card. There are restrictions on what can be purchased and who can use it. Usually an employee is authorized to use the p-card for specific purchases. P-cards expedite procurement of materials and payment to the supplier. This improves supplier relations and tracks expenditures more efficiently. Optical scanning makes it easy to scan and digitally record checks the firm does send or receive. This makes them easier to track and identify errors or possible fraud.Incorrect
Disbursement methods
Firms can also issue purchase procurement cards (p- cards) which are a kind of credit card. There are restrictions on what can be purchased and who can use it. Usually an employee is authorized to use the p-card for specific purchases. P-cards expedite procurement of materials and payment to the supplier. This improves supplier relations and tracks expenditures more efficiently. Optical scanning makes it easy to scan and digitally record checks the firm does send or receive. This makes them easier to track and identify errors or possible fraud. -
Question 20 of 30
20. Question
Which of the following statements is true regarding minimizing disbursement fraud?
Correct
Minimizing disbursement fraud
Checks are still the primary form of disbursement for most institutions. Consequently, the greatest source of fraud risk is from checks. One method of preventing check fraud is to use the disbursement service ‘Positive Pay’. The disbursing bank matches serial numbers of checks presented to them with the master list of checks that have been authorized by the issuing company. Any checks that don’t match are flagged and the information is forwarded to the issuing company for authorization.Incorrect
Minimizing disbursement fraud
Checks are still the primary form of disbursement for most institutions. Consequently, the greatest source of fraud risk is from checks. One method of preventing check fraud is to use the disbursement service ‘Positive Pay’. The disbursing bank matches serial numbers of checks presented to them with the master list of checks that have been authorized by the issuing company. Any checks that don’t match are flagged and the information is forwarded to the issuing company for authorization. -
Question 21 of 30
21. Question
Which of the following statements is true regarding net settlement?
Correct
Net settlement
Intra-company trade is when the multiple business units of a corporation trade with each other. Rather than process transactions and then issue payments to the various business units for all the services rendered, the corporation will just process all of the transactions. Because many of the transactions between business units will essentially cancel each other, the funds transfer for those transactions is not necessary. Only payments that have not been cancelled will be transferred to the appropriate business unit. This is a net settlement system and it reduces costs and volume of fund transfers.Incorrect
Net settlement
Intra-company trade is when the multiple business units of a corporation trade with each other. Rather than process transactions and then issue payments to the various business units for all the services rendered, the corporation will just process all of the transactions. Because many of the transactions between business units will essentially cancel each other, the funds transfer for those transactions is not necessary. Only payments that have not been cancelled will be transferred to the appropriate business unit. This is a net settlement system and it reduces costs and volume of fund transfers. -
Question 22 of 30
22. Question
Which of the following statements is true regarding net settlement?
Correct
Net settlement
Corporations can also use the net settlement system with firms that they regularly trade with. Financial institutions use net settlement to balance debits and credits. In a similar process cash managers add or deduct daily projected collections or disbursements to or from the opening cash position. If there is a deviation between the opening cash position and the projected closing cash position then the cash manager will need to take steps to maintain balance and achieve the optimal cash position.Incorrect
Net settlement
Corporations can also use the net settlement system with firms that they regularly trade with. Financial institutions use net settlement to balance debits and credits. In a similar process cash managers add or deduct daily projected collections or disbursements to or from the opening cash position. If there is a deviation between the opening cash position and the projected closing cash position then the cash manager will need to take steps to maintain balance and achieve the optimal cash position. -
Question 23 of 30
23. Question
Which of the following statements is true regarding control measures?
Correct
Control measures
A firm should implement controls to minimize threats, like error and/or fraud, to a firm’s cash reserves. An effective control tool is to simply separate the duties related to cash activities. For example, this means the check authorization should be done by someone other than the one who reconciles the accounts and from the one who approves expenses. Another simple control measure is to match all payments with an invoice.Incorrect
Control measures
A firm should implement controls to minimize threats, like error and/or fraud, to a firm’s cash reserves. An effective control tool is to simply separate the duties related to cash activities. For example, this means the check authorization should be done by someone other than the one who reconciles the accounts and from the one who approves expenses. Another simple control measure is to match all payments with an invoice. -
Question 24 of 30
24. Question
Which of the following statements is false regarding liquidity management?
Correct
Liquidity management
Because firm’s cash position fluctuates (i.e. cash inflows and outflows are rarely equal), a treasurer needs to monitor the level of cash available at any given time and ensure that enough cash is on hand when it is needed most. Cash needs to be available for the firm’s regular, daily, payments that include vendor payments, employee payroll, taxes, and any debt payments. Simply keeping the cash in a readily accessible account and available for disbursements is the equivalent of having an extremely liquid cash position and ensures that timely disbursements can occur. Yet, having extremely liquid cash position fails to consider the potential value of the cash if it were invested.Incorrect
Liquidity management
Because firm’s cash position fluctuates (i.e. cash inflows and outflows are rarely equal), a treasurer needs to monitor the level of cash available at any given time and ensure that enough cash is on hand when it is needed most. Cash needs to be available for the firm’s regular, daily, payments that include vendor payments, employee payroll, taxes, and any debt payments. Simply keeping the cash in a readily accessible account and available for disbursements is the equivalent of having an extremely liquid cash position and ensures that timely disbursements can occur. Yet, having extremely liquid cash position fails to consider the potential value of the cash if it were invested. -
Question 25 of 30
25. Question
Which of the following statements is true regarding liquidity management?
Correct
Liquidity management
In fact, it is considered irresponsible not to attempt to generate more income from the cash when it is not immediately needed for payments. However, investments can reduce cash liquidity and therefore limit the cash availability. Too little cash liquidity can interfere with a firm’s ability to make timely disbursements. The balancing of a firm’s payment needs and investment opportunities is liquidity management.Incorrect
Liquidity management
In fact, it is considered irresponsible not to attempt to generate more income from the cash when it is not immediately needed for payments. However, investments can reduce cash liquidity and therefore limit the cash availability. Too little cash liquidity can interfere with a firm’s ability to make timely disbursements. The balancing of a firm’s payment needs and investment opportunities is liquidity management. -
Question 26 of 30
26. Question
Which of the following statements is true regarding cash forecasting?
Correct
Cash forecasting
To manage liquidity effectively, the treasurer should assess and project short term cash needs using all available sources of information (i.e. cash forecasting). Accounts receivable is one valuable source of information that can be used in cash forecasting because there is often a pattern of collection. This pattern of collection can be used to estimate likely future collections. Distribution forecasts use disbursements schedules and are useful for estimating the impact that future disbursements will have on the cash position.Incorrect
Cash forecasting
To manage liquidity effectively, the treasurer should assess and project short term cash needs using all available sources of information (i.e. cash forecasting). Accounts receivable is one valuable source of information that can be used in cash forecasting because there is often a pattern of collection. This pattern of collection can be used to estimate likely future collections. Distribution forecasts use disbursements schedules and are useful for estimating the impact that future disbursements will have on the cash position. -
Question 27 of 30
27. Question
Which of the following statements is true regarding cash forecasting?
Correct
Cash forecasting
However, it is best to use both the A/R pattern and the distribution patterns to create an accurate cash forecast. This is a Receipts and Disbursements (R&D) forecast. Once a cash forecast is complete, and it is determined that there will likely be cash surpluses during the given period, then the investment decision should be made. An investment decision is dependent on the level of investment risk a firm can assume. Generally, firms will not assume great risk with their short term cash surpluses and so only short-term investments are considered.Incorrect
Cash forecasting
However, it is best to use both the A/R pattern and the distribution patterns to create an accurate cash forecast. This is a Receipts and Disbursements (R&D) forecast. Once a cash forecast is complete, and it is determined that there will likely be cash surpluses during the given period, then the investment decision should be made. An investment decision is dependent on the level of investment risk a firm can assume. Generally, firms will not assume great risk with their short term cash surpluses and so only short-term investments are considered. -
Question 28 of 30
28. Question
Which of the following statements is true regarding short term investment policy?
Correct
Short term investment policy
Before a firm invests any funds in short term investments it should have a short term investment policy and the investment decisions should be in compliance with that policy. This investment policy should require regular monitoring of the investments by authorized and qualified persons. It should also specify the level of risk the firm can tolerate. This risk level can be translated into different categories of investments (i.e. low risk to high risk).Incorrect
Short term investment policy
Before a firm invests any funds in short term investments it should have a short term investment policy and the investment decisions should be in compliance with that policy. This investment policy should require regular monitoring of the investments by authorized and qualified persons. It should also specify the level of risk the firm can tolerate. This risk level can be translated into different categories of investments (i.e. low risk to high risk). -
Question 29 of 30
29. Question
Which of the following statements is true regarding short term investment policy?
Correct
Short term investment policy
The policy might specify which credit rating system is to be used for assessing an investment. Investments are primarily rated according to the chance of default. For example, U.S. Treasury issues are considered to have no chance of default because they are backed by the U.S. government. Some securities that have a high risk of default can be considered low risk if another dependable financial intermediary agrees to guarantee the security. This is a credit enhancement. Other collateral that could be used to guarantee a security can also improve a security’s rating.Incorrect
Short term investment policy
The policy might specify which credit rating system is to be used for assessing an investment. Investments are primarily rated according to the chance of default. For example, U.S. Treasury issues are considered to have no chance of default because they are backed by the U.S. government. Some securities that have a high risk of default can be considered low risk if another dependable financial intermediary agrees to guarantee the security. This is a credit enhancement. Other collateral that could be used to guarantee a security can also improve a security’s rating. -
Question 30 of 30
30. Question
Which of the following statements is true regarding rating systems and the possible risks?
Correct
Rating systems and the possible risks
Credit rating agencies like Moody’s or Standard & Poor’s assign short term investments ratings that reflect the ability of the issuer to repay the short term debt. Moody’s rating system uses the range of Prime-1(P-1) thru Prime-3(P-3), and finally to ‘Not Prime’ for securities rated below the other three categories. Standard &Poor’s rating system uses A-1 thru A-3 for investment grade securities, and ‘B’ for securities that are considered below investment grade. Some investments are not rated. Unrated investments should be thoroughly assessed for risk of liquidity (i.e. whether they can be readily sold again).Incorrect
Rating systems and the possible risks
Credit rating agencies like Moody’s or Standard & Poor’s assign short term investments ratings that reflect the ability of the issuer to repay the short term debt. Moody’s rating system uses the range of Prime-1(P-1) thru Prime-3(P-3), and finally to ‘Not Prime’ for securities rated below the other three categories. Standard &Poor’s rating system uses A-1 thru A-3 for investment grade securities, and ‘B’ for securities that are considered below investment grade. Some investments are not rated. Unrated investments should be thoroughly assessed for risk of liquidity (i.e. whether they can be readily sold again).