Cash And Marketable Securities Management

Question 1

Checks that are authorized by a payer in advance, and written either by the payee or by the payee’s bank and the deposited in the payee’s bank account

Answer 1

Preauthorized Checks (PACs)

Question 3

Length of time from when a check is written until the actual recipient can draw upon or use the “good funds”

Answer 3

Float

Question 5

A non-negotiable instrument that provides the firm with a means to move funds from local bank accounts to concentration bank accounts

Answer 5

Depository transfer checks

Question 7

Also known as near cash (or near-cash) assets

Answer 7

Marketable securities

Question 8

Involves the maintenance of the appropriate level of cash to meet the firm’s cash requirements and to maximize income on idle funds

Answer 8

Cash Management

Question 9

Security investments the firm can quickly convert to cash balances

Answer 9

Marketable securities

Question 10

Process of planning and controlling investment in marketable securities to meet the firm’s cash requirements and to maximize income on idle funds

Answer 10

Marketable Securities Management

Question 11

Selection of a few major banks where the firm maintains significant disbursing accounts

Answer 11

Concentration banking

Question 12

Four primary motives for maintaining cash balances

Answer 12

1. Transaction or Liquidity Motive
2. Precautionary or Contingent Motive
3. Speculative Motive
4. Contractual Motive

Question 13

Inability to pay the bills on time

Answer 13

Insolvency

Question 14

A payment mechanism that substitutes for regualar checks in that drafts are not drawn on anbank, but instead are drawn on and authorized by the firm against its demand deposit account

Answer 14

Payable-through drafts

Question 16

Permits centralized control over cash outflows but also maintains divisional disbursing authority

Answer 16

Zero balance authority

Question 17

Holding of cash to facilitate normal transactions of the business

Answer 17

Transaction or Liquidity Motive

Question 18

Delay between the firm sending out a payment and the money being taken out of the firm’s bank account.

Answer 18

Disbursment float (positive float)

Question 19

Hold cash to compensate banks for providing certain services and loans

Answer 19

Contractual Motive

Question 21

A collection of geographically dispersed P.O boxes, each maintained for the firm by a bank local to the respective box.

Answer 21

Lock-box system

Question 22

Moving funds electronically and eliminates transit float

Answer 22

Wire transfers

Question 23

Accelerates cash collections from customers by having funds sent to several geographically situated regional banks and then transferred to a main concentration account in another bank.

Answer 23

Concentration banking

Question 25

Held to avail incentives; to take advantage of discounts and attractive interest rates

Answer 25

Speculative Motive

Question 27

Several different techniques that can help firms reduce collection float

Answer 27

1. Lock-box system
2. Concentration banking
3. Pre-authorized checks
4. Wire transfers

Question 28

The sum of cash and marketable securities

Answer 28

Liquid assets

Question 29

Three types of collection float

Answer 29

1. Mail float
2. Processing float
3. Clearing float

Question 30

To provide for buffer against contingencies; payment for purposes which cannot be predicted; maintenance of balances to be used to satisfy possibe, but yet indefinite cash needs

Answer 30

Precautionary or Contingent Motive

Question 33

Currency and coin plus demand deposit accounts

Answer 33

Cash