Question 1

A primary goal of cash management is to insure that the inflows and outflows of cash are synchronized.

Accepted Answer

Cash management involves maximizing the cash inflows and minimizing the cash outflows of an organization while ensuring that there is enough cash on hand to meet its financial obligations. To achieve this, it is necessary to synchronize the inflows and outflows of cash, making sure that there is always enough money available to cover expenses when due. Therefore, Option A is true.

Question 2

In the management of cash and marketable securities, the primary concern is profitability.

Accepted Answer

The primary concern in the management of cash and marketable securities is liquidity. Maintaining enough cash and easily convertible securities on hand to cover expenses and liabilities is important, even if it means sacrificing some potential profitability.

Question 3

Float is the difference between the cash balance on the corporate books and the amount currently credited to the corporation by the bank.

Accepted Answer

Float is the difference between the cash balance on the corporate books and the amount currently credited to the corporation by the bank.

Question 4

It is possible for companies to operate with negative cash balances on their books.

Accepted Answer

Companies can operate with negative cash balances on their books by borrowing funds or using other forms of financing to cover short-term cash flow shortages. However, it is not sustainable in the long run and can lead to financial difficulties if not managed properly.

Question 5

Proper management of sales, receivables, payables, and inventory form the basis of cash flow.

Accepted Answer

Proper management of sales, receivables, payables, and inventory are all key components of cash flow management. These factors all impact the amount of cash a company has on hand at any given time.

Question 6

Unfortunately, float is too complicated to be effectively managed through any combination of disbursement and collection strategies.

Accepted Answer

Float can be effectively managed through various disbursement and collection strategies, such as accelerating collections, delaying disbursements, and using electronic payment methods to speed up transactions and reduce processing time. However, it does require proper planning and monitoring to ensure effective management.

Question 7

The cash-generating process for a firm is continuous, even though cash flow can be sporadic.

Accepted Answer

The statement is true. Cash is generated through various activities of a firm such as sales, investments, and financing activities, which may not occur at a constant rate. However, the process of generating cash is ongoing and essential for the survival and growth of the firm.

Question 8

Cost-benefit is not a consideration in development of a cash management system, only safety and liquidity.

Accepted Answer

Cost-benefit is a key consideration in the development of a cash management system, in addition to safety and liquidity. The system should balance the costs of holding excess cash with the benefits of having cash available for investment opportunities or to meet unexpected expenses.

Question 9

For most firms, the primary motive for holding cash is the transaction motive.

Accepted Answer

The transaction motive refers to the firm's need to hold cash for day-to-day operations such as paying bills, making purchases, and meeting payroll obligations. This is the primary reason why most firms hold cash.

Question 10

"Extended disbursement float" has to do with the length of time a corporation takes to collect bills.

Accepted Answer

Extended disbursement float refers to the length of time it takes for a company to issue a payment and for that payment to be processed and cleared from its bank account, not the collection of bills.

Question 11

A lock-box system is a method of extending disbursements.

Accepted Answer

A lock-box system is a service offered by banks to process payments received by a company from its customers quickly and efficiently, not a method of extending disbursements.

Question 12

"Float" has been largely reduced because of electronic payments and improvements in business-to-business relationships.

Accepted Answer

Float refers to the time lag between the initiation of a payment and the availability of funds to the recipient. With electronic payments and better B2B relationships, this time lag has been significantly reduced.

Question 13

A lock-box is used to safeguard the corporation's marketable securities.

Accepted Answer

A lock-box is typically used in cash management to speed up the collection of receivables, not for safeguarding marketable securities.

Question 14

A lock-box is used by the selling corporation to speed up the check collection and check-clearing process.

Accepted Answer

A lock-box is a service provided by banks to manage the receipt of payments from a company's customers. It involves directing payments to a special post office box that is serviced by the bank, increasing the speed of the check collection and check-clearing process.

Question 15

Computerized cash management and electronic funds transfer allow firms to carry smaller cash balances.

Accepted Answer

Computerized cash management and electronic funds transfer enable firms to have better control over their cash flow and therefore keep smaller cash balances available.

Question 16

"Float" is the name given for a short-term loan between suppliers and buyers.

Accepted Answer

"Float" refers to the time difference between when a transaction is initiated and when the money is actually deducted from the payer's account, not a short-term loan between suppliers and buyers.

Question 17

Cash balances are usually determined by the amount of cash flowing through the firm on a yearly basis.

Accepted Answer

Cash balances are determined by the firm's liquidity needs and cash management policies, not directly by the annual cash flow.

Question 18

Minimizing cash balances can improve overall corporate profitability.

Accepted Answer

Minimizing cash balances reduces the amount of idle cash that is not earning any returns. By investing or utilizing cash, companies can potentially increase their profits and improve their overall financial performance.

Question 19

Checks can be cleared only through the Federal Reserve System.

Accepted Answer

Checks can be cleared through various channels including the Federal Reserve System, private clearinghouses, and correspondent banks.

Question 20

For most modern corporations, the more cash they have, the better off they are.

Accepted Answer

While having cash is important for liquidity and operational needs, excessive cash can indicate inefficiency in asset utilization or missed investment opportunities, potentially lowering shareholder value.

Quiz 7: Current Asset Management

A primary goal of cash management is to insure that the inflows and outflows of cash are synchronized.

In the management of cash and marketable securities, the primary concern is profitability.

Float is the difference between the cash balance on the corporate books and the amount currently credited to the corporation by the bank.

It is possible for companies to operate with negative cash balances on their books.

Proper management of sales, receivables, payables, and inventory form the basis of cash flow.

Unfortunately, float is too complicated to be effectively managed through any combination of disbursement and collection strategies.

The cash-generating process for a firm is continuous, even though cash flow can be sporadic.

Cost-benefit is not a consideration in development of a cash management system, only safety and liquidity.

For most firms, the primary motive for holding cash is the transaction motive.

"Extended disbursement float" has to do with the length of time a corporation takes to collect bills.

A lock-box system is a method of extending disbursements.

"Float" has been largely reduced because of electronic payments and improvements in business-to-business relationships.

A lock-box is used to safeguard the corporation's marketable securities.

A lock-box is used by the selling corporation to speed up the check collection and check-clearing process.

Computerized cash management and electronic funds transfer allow firms to carry smaller cash balances.

"Float" is the name given for a short-term loan between suppliers and buyers.

Cash balances are usually determined by the amount of cash flowing through the firm on a yearly basis.

Minimizing cash balances can improve overall corporate profitability.

Checks can be cleared only through the Federal Reserve System.

For most modern corporations, the more cash they have, the better off they are.