Chapter 10 - TM

What is a ramification of overly strict credit? A. Company may decline trade credit to customers who are an acceptable credit risk. B. Company has improved sales opportunities. C. Company may grant trade credit to customers who are an unacceptable credit risk. D. May increase risk of late payments and bad debt expenses.

A. Company may decline trade credit to customers who are an acceptable credit risk.

Which two accounts vary spontaneously as sales levels change, and why do they change? A. Current assets (credit sales) and current liabilities (fewer assets or more liabilities) B. Inventories (JIT) and long-term liabilities (CapEx) C. Common stock (dividends) and long-term liabilities (CapEx) D. Current assets (credit sales) and long-term assets (capacity expansion)

A. Current assets (credit sales) and current liabilities (fewer assets or more liabilities)

A company is interested in lowering its overall banking costs, managing netting, pooling, re-invoicing, and centralizing FX exposure at headquarters. Which of the following options will accomplish this? A. In-house banking B. Shared service center C. Company processing center D. Automated clearing house

A. In-house banking

An increasing number of multinational companies have adopted formal multilateral netting systems for which of the following reasons? A. To facilitate management of foreign exchange transactions B. To improve check clearing times C. To standardize payment routes and banking channels D. To eliminate duplicate payments to vendors

A. To facilitate management of foreign exchange transactions

What is a company's CCC and cash turnover given the following? •Days' inventory = 45 •Days' receivables = 35 •Days' payables = 30 A. 50 days; 6.6 times B. 50 days; 7.3 times C. 55 days; 6.6 times D. 55 days; 7.3 times

B. 50 days; 7.3 times

Which of the following trade payment methods virtually eliminates the seller s credit risk? A. Bankers acceptance B. Cash before delivery C. Countertrade D. Consignment

B. Cash before delivery

Which is sometimes used if a subsidiary's currency is expected to appreciate relative to the parent company's currency? A. Leading B. Lagging C. Netting D. Re-invoicing

B. Lagging

What does a company with a restrictive current asset investment strategy typically have? A. High financing costs B. Low accounts receivable balances C. High inventory levels D. Low tax liabilities

B. Low accounts receivable balances

An international company would establish a re-invoicing center for which of the following reasons? A. To reduce its international balance reporting charges B. To manage the foreign exchange exposure of its foreign subsidiaries C. To take advantage of interest-bearing demand deposits D. To bring transaction exposures more closely in line with economic exposures

B. To manage the foreign exchange exposure of its foreign subsidiaries

The items listed below are some of the reasons to use caution if reducing A/R and inventory conversion or extending A/P deferral periods. What is another of these reasons? A. Overly loose credit and collection standards B. Won't sell to customers with good credit who are a bit slow in paying C. Excessive reliance on short-term bank credit D. Insufficient reliance on A/P

B. Won't sell to customers with good credit who are a bit slow in paying

All are multicurrency account stipulations EXCEPT A. the base currency in which the account is denominated. B. the currencies not accepted. (All others are accepted.) C. the spread over spot rate to use in exchanging each currency back to the base currency. D. the value date to apply to debits and credits for each transaction type and currency.

B. the currencies not accepted. (All others are accepted.)

What is a benefit of using in-house banks in international treasury management? A. Manages international treasury management investments but not debts B. Replaces netting, pooling, and re-invoicing C. Aggregates many small transactions into fewer larger ones D. Decentralizes FX exposures

C. Aggregates many small transactions into fewer larger ones

What is characteristic of a relaxed current asset investment strategy? A. Company has low levels of cash. B. Company has low levels of A/R. C. Company has less risk due to higher cash holdings. D. Company has higher investment returns than those with a restrictive strategy.

C. Company has less risk due to higher cash holdings.

Examples of traditional factors used in making a credit decision include which of the following? I. Capacity II. Capital III. Compliance IV. Character A. IV only B. I and III only C. I, II, and IV only D. I, II, III, and IV

C. I, II, and IV only

Which procure-to-pay step initiates the inventory period (shown below), and which order-to-cash step ends it? A. Send and receive PO. B. Ship and receive goods and invoice. C. Send and receive payment. D. Reconcile and account.

C. Send and receive payment.

A company is based in the United States and has an operating subsidiary in Germany. With a stable U.S. dollar and a depreciating euro, the company's cash manager may elect to: A. Pool excess funds in the United States to offset German deficits B. Implement a dollar-based multilateral netting system C. Start leading receivables from the German subsidiary D. Establish a multicurrency account in the United States

C. Start leading receivables from the German subsidiary

What is characteristic of a restrictive current asset investment strategy? A. Company maintains high levels of current assets relative to sales. B. Raw materials investment is significant. C. The just-in-time approach is commonly used. D. A/R balances are kept high.

C. The just-in-time approach is commonly used.

In addition to verifying incoming payments and authorizing payments, vouchering has a three-way match of an invoice against what? A. Inventory level and payment receipt B. Inventory level and receiving or shipping information C. Approved PO and payment receipt D. Approved PO and receiving or shipping information

D. Approved PO and receiving or shipping information

The delay between when a payment is initiated and __________ is __________ A. seller's/payee's account is credited; disbursement float B. seller's/payee's account is debited; collection float C. buyer's/payor's account is credited; collection float D. buyer's/payor's account is debited; disbursement float

D. buyer's/payor's account is debited; disbursement float