1. Which of the following actions are likely to reduce the length of a company's cash conversion cycle?
(A) Adopting a just-in-time inventory system which reduces the inventory conversion period.
(B) Reducing the average day's sales outstanding (DSO) on its accounts receivable
(C) Reducing the amount of time the company takes to pay its suppliers.
(D) All the above answers are correct
(E) Answers A and B are correct
2. Which of the following statements is most correct:
(A) The cash balances of most firms consist of transactions, compensating, precautionary, and speculative balances. The total desired cash balance can be determined by calculating the amount needed for each purpose and then summing them together
(B) The easier a firm's access to borrowed funds the higher its precautionary balances will be, in order to protect against sudden increases in interest rates.
(C) For some firms, holding highly liquid marketable securities is a substitute for holding cash because the marketable securities accomplish the same objective as cash.
(D) Firms today are more likely to rely on cash than on reserve borrowing power or marketable securities for speculative purposes because of the need to move quickly.
(E) Each of the statements above is false
3. Which of the following statements is most correct:
(A) Shorter-term cash budgets, in general, are used primarily for planning purposes while longer-term budgets are used for actual cash control.
(B) The cash budget and the capital budget are planned separately and although they are both important to the firm, they are independent of each other.
(C) Since depreciation is a non-cash charge, it does not appear on nor have an effect on the cash budget.
(D) The target cash balance is set optimally such that it need not be adjusted for seasonal patterns and unanticipated fluctuations in receipts, although it is changed to reflect long-term changes in the firm's operations.
(E) The typical actual cash budget will reflect interest on loans and income from investment of surplus cash. These numbers are expected values and actual results might turn out different
4. Other things held constant, which of the following will cause an increase in working capital?
(A) Cash is used to buy marketable securities.
(B) A cash dividend is declared and paid.
(C) Merchandise is sold at a profit, but the sale is on credit.
(D) Long-term bonds are retired with the proceeds of a preferred stock issue.
(E) Missing inventory is written off against retained earnings.
5. Which of the following is typically part of the cash budget?
(A) Payment lag
(B) Payment for plant construction
(C) Cumulative cash
(D) All of the above
(E) Only answers A and C above
6. Which of the following statements concerning the cash budget is true?
(A) Depreciation expense is not explicitly included, but depreciation effects are implicitly included in estimated tax payments
(B) Cash budgets do not include financial expenses such as interest and dividend payments.
(C) Cash budgets do not include cash inflows from long-term sources such as bond issues.
(D) Answers A and B above
(E) Answers A and C above
7. In Japan, 90-day securities have a 4 percent annualized return and 180-day securities have a 5 percent annualized return. In the United States, 90-day securities have a 4 percent annualized return and 180-day securities have an annualized return of 4.5 percent. All securities are of equal risk. Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most correct?
(A) The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market
(B) The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market.
(C) The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.
(D) Answers A and B are correct
(E) Answers B and C are correct
8. Which of the following statements is false?
(A) Any bond sold outside the country of the borrower is called an international bond.
(B) Foreign bonds and Eurobonds are two important types of international bonds.
(C) Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold
(D) The term Eurobond specifically applies to any foreign bonds denominated in U.S. currency.
(E) None of the above
9. If the inflation rate in the United States is greater than the inflation rate in Sweden, other things held constant, the Swedish currency will
(A) Appreciate against the U.S. dollar.
(B) Depreciate against the U.S. dollar.
(C) Remain unchanged against the U.S. dollar
(D) Appreciate against other major currencies.
(E) Appreciate against the dollar and other major currencies
10. Multinational financial management requires that
(A) The effects of changing currency values be included in financial analyses.
(B) Legal and economic differences be considered in financial decisions.
(C) Political risk be excluded from multinational corporate financial analyses.
(D) All the above
(E) Only A and B above
11. Which of the following are reasons why companies move into international operations?
(A) To take advantage of lower production costs in regions of inexpensive labor.
(B) To develop new markets for their finished products.
(C) To better serve their primary customers.
(D) Because important raw materials are located abroad
(E) All the above
12. Which of the following statements is most correct:
(A) Compensating balance requirements apply only to businesses, not to individuals.
(B) Compensating balances are essentially costless to most firms, because those firms would normally have such funds on hand to meet transactions needs anyway.
(C) If the required compensating balance is larger than the transactions balance the firm would ordinarily hold, then the effective cost of any loan requiring such a balance is increased.
(D) Banks are prohibited from earning interest on the funds they force businesses to keep as compensating balances
(E) All the above statements are false
13. Which of the following statements is most correct:
(A) Poor synchronization of cash flows which results in high cash management costs can be partially offset by increasing disbursement float and decreasing collections float
(B) The size of a firm's net float is primarily a function of its natural cash flow synchronization and how it clears its checks.
(C) Lockbox systems are used mainly for security purposes as well as to decrease the firm's net float.
(D) If a firm can speed up its collections and slow down its disbursements, it will be able to reduce its net float.
(E) A firm practicing good cash management and making use of positive net float will bring its checkbook balance as close to zero as possible, but must never generate a negative book balance.
14. Which of the following statement completions is most correct? If the yield curve is upward sloping, then a firm's marketable securities portfolio, assumed to be held for liquidity purposes, should be
(A) Weighted toward long-term securities because they pay higher rates.
(B) Weighted toward short-term securities because they pay higher rates.
(C) Weighted toward U.S. Treasury securities to avoid interest rate risk.
(D) Weighted toward short-term securities to avoid interest rate risk.
(E) Balanced between long- and short-term securities to minimize the effects of either an upward or a downward trend in interest rates.
15. A lockbox plan is most beneficial to firms which
(A) Send payables over a wide geographic area
(B) Have widely disbursed manufacturing facilities.
(C) Have a large marketable securities account to protect.
(D) Hold inventories at many different sites.
(E) Make collections over a wide geographic area.
The solution explains some multiple choice questions relating to cash management