Chapter 31 Quiz, Cash Management




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


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


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


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


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


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


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


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


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


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


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


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


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


14. For large firms, purchasing securities for even one day generally makes sense, even with transaction costs.
A.True
B.False


15. Concentration banking is used to slow down disbursements.
A.True
B.False



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