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1 | |
Firms would need to hold zero cash when: |
| | A) | Transaction-related needs are greater than cash inflows |
| | B) | Transaction-related needs are less than cash inflows |
| | C) | Transaction-related needs are not perfectly synchronized with cash inflows |
| | D) | Transaction-related needs are perfectly synchronized with cash inflows |
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2 | |
The Baumol model determines the optimal cash balance by: |
| | A) | Balancing total costs against opportunity costs |
| | B) | Minimizing total costs of holding cash against trading securities costs |
| | C) | Balancing trading securities costs against total costs |
| | D) | Minimizing total costs less trading costs |
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3 | |
Concerning the Baumol model, which of the following is not correct (all other things equal)? |
| | A) | The optimum cash balance is higher at higher interest rates |
| | B) | The optimum cash balance is higher at higher fixed order costs |
| | C) | The optimum cash balance is higher at higher total cash requirement |
| | D) | All of the above are correct |
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4 | |
A large firm may hold substantial cash balances because: |
| | A) | These balances are required by the bank |
| | B) | The company may have accounts in many different banks |
| | C) | The company may have a very decentralized organization |
| | D) | All of the above |
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5 | |
We should expect cash balances to increase when: |
| | A) | The transaction costs of buying or selling interest-bearing securities increase |
| | B) | Interest rates increase |
| | C) | Sales volume falls |
| | D) | Uncertainty about day-to-day or week-to-week cash flows decreases |
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6 | |
Checks written by the firm are said to generate: |
| | A) | Availability float |
| | B) | Ledger float |
| | C) | Disbursement float |
| | D) | Book float |
| | E) | None of the above |
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7 | |
The difference between bank cash and book cash is called: |
| | A) | Disbursement float |
| | B) | Net float |
| | C) | Availability float |
| | D) | None of the above |
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8 | |
On an average day, a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's disbursement float? |
| | A) | $10,500 |
| | B) | $1,500 |
| | C) | $1,800 |
| | D) | None of the above |
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9 | |
Champion, Inc., has $2 million on deposit with the bank. It now writes checks for $100,000 and $200,000 and deposits a check for $80,000. Two weeks later it learns that the $200,000 check and $80,000 check have cleared. What is the company's disbursement float? |
| | A) | $300,000 |
| | B) | $220,000 |
| | C) | $100,000 |
| | D) | -$100,000 |
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10 | |
The most common cash management technique used to speed up collections is: |
| | A) | Concentration banking |
| | B) | Wire transfers |
| | C) | Lock-boxes |
| | D) | In-house processing |
| | E) | None of the above |
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11 | |
Assume that the average number of daily payments to a lock-box is 200, the average size of the payment is $1,000, the rate of interest per day is 0.02% (i.e., 0.0002), the savings in mail time is 2 days, and the savings in processing time is 1 day. What is the daily return from operating the lock-box? |
| | A) | $80 |
| | B) | $100 |
| | C) | $120 |
| | D) | $130 |
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12 | |
Which of the following statements concerning zero balance accounts is not correct? |
| | A) | They are set up to handle disbursement activity |
| | B) | The account has a minimum amount at all times |
| | C) | Checks are automatically transferred into the account as checks presented for payment |
| | D) | The transfer is automatic and involves an accounting entry only |
| | E) | The master and the zero balance account locate at the same bank |
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13 | |
Fedwire is an example of: |
| | A) | A net settlement system |
| | B) | A gross settlement system |
| | C) | An electronic trading system |
| | D) | None of the above |
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14 | |
For large firms, purchasing securities for even one day generally makes sense, even with transaction costs. |
| | A) | True |
| | B) | False |
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15 | |
Concentration banking is used to slow down disbursements. |
| | A) | True |
| | B) | False |
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