Cash And Liquidity Management Flashcards
Bank Reconciliation
A bank reconciliation explains the difference between the banks records and the company’s own records.
Market taker
Is a customer of the markets who transact with a market maker at the best price they can find among market makers.
Documentary Credit
A documentary credit is a written agreement by a bank on behalf of the importer to pay the exporter the amount and within a specified time period subject to the exporter providing the documents that meet the terms of the agreement.
Role of a master account in a notional pooling system
- manage the offset of balances and the interest calculation
- provides a mechanism for managing the funds held in the notional pool
- can be used to invest or borrow funds in order to return the overall balance on the pool to zero
Define headroom
Headroom is the amount Is the amount of undrawn bank facilities available to a company including or excluding uncommitted facilities.
This is important in cash management as sufficient headroom allows a company to absorb unexpected shortfalls in cash.
Identify potential costs that come from extending credit to customers rather than demanding payment up front
Interest expenses in funding receivables
Losses from bad debt
Debt collection costs
Cost of credit evaluation
Cost of sales ledger ledger
Identify potential costs that come from extending credit to customers rather than demanding payment up front
Interest expenses in funding receivables
Losses from bad debt
Debt collection costs
Cost of credit evaluation
Cost of sales ledger ledger
Identify potential costs that come from extending credit to customers rather than demanding payment up front
Interest expenses in funding receivables
Losses from bad debt
Debt collection costs
Cost of credit evaluation
Cost of sales ledger ledger
Functions of payment factories
Execution of payments
Administration of payments
Reporting functions associated with payments
Governance of payments
Differences between Euro commercial paper (ECP) and USD commercial paper (USCP)
UCP issued in domestic UD market where ECP is issued in the eurocurrency markets
Typical maturity is 30 days for USCP and 60 for ECP
ECP quoted on a yield basis but USCP quoted on a discount basis
Currency - USCP is only issued in us dollars but ECP issued in other currencies
Committed Facility
Where the lender is contractually obliged to lend at a predetermined margin over a reference rate subject to the terms of the loan agreement being met by the borrower
Sale and leaseback transaction example
Buildings
Overtrading
Overheating occurs when a company is growing rapidly but cash outflows and greater than cash inflows
Correspondent bank
A correspondent bank handles transactions in a country on behalf of a bank located in a different country
When would you use cash concentrations over notional pooling
When notional pooling is prohibited in a jurisdiction
When tax authorities treat cross company guarantees unfavorably
To maximise ease of Access to cash
