Feb 25 CASH MANAGEMENT (Review video) and MARKETABE SECURITIES MANAGEMENT Flashcards
BOOK BALANCE ≠ BANK BALANCE
FLOAT
TYPES OF FLOAT
BOOK BALANCE < BANK BALANCE
DISBURSEMENT FLOAT OR POSITIVE
FLOAT
BOOK BALANCE > BANK BALANCE
COLLECTION FLOAT OR NEGATIVE FLOAT
According to the objective of cash management,
a. All cash should be invested.
b. Cash should be invested, but some should be retained even if there is no reason to retain it.
c. Cash should be invested, but some should be retained for liquidity purposes.
d. None of the above.
ANSWER: c. Cash should be invested, but some should be retained for liquidity purposes.
Which of the following is not a motive for holding cash?
- Psychological motive
- Fiduciary motive
- Contractual motive
- Speculative motive
a. 1 and 2
b. 3 and 4
c. 2 and 3
d. 1 and 4
ANSWER: a. 1 and 2
Which of the following actions would not be consistent with good management
a. Holding checks in payments
b. Offering cash discounts to accelerate collections
c. Minimizing disbursement float
d. Instituting a lockbox system to speed up collections
a. Holding checks in payments
Which of the following is correct regarding the application of the Baumol Model in cash management
S1: The Baumol Model determines the optimal cash balance that minimizes the total costs of holding cash against trading securities costs.
S2: At the optimal cash balance, the total costs of holding cash are ALWAYS equal to the total costs of converting securities.
a. S1 only
b. S2 only
c. Both statements
d. None of the statements
ANSWER: c. Both statements
Which of the following is not a suitable marketable security for cash management
a. Callable bonds
b. Treasury bills
c. Certificates of deposit
d. Eurodollars
ANSWER: a. Callable bonds
Which of the following investments generally pays the highest return
a. Commercial paper
b. Money market accounts
c. Treasury bills
d. Treasury notes
ANSWER: a. Commercial paper
