Chapter 19 Finance 3900

Which of the following are ways to increase disbursement float? Multiple select question. Mailing checks from nearby post offices Writing checks on nearby banks Writing checks on geographically distant banks Mailing checks from remote post offices

Writing checks on geographically distant banks Mailing checks from remote post offices

To avoid interest rate risk, firms often limit their investment maturities to ______ days. Multiple choice question. 60 90 120 30

90

Short-term _________ securities can be bought and sold in financial markets and have minimal default risk.

Marketable

Which of the following are examples of cash flows that can be grouped under the transaction motive for holding cash? Multiple select question. Purchase of investment securities Payment of trade debts Purchase of a building Payment of wages

Payment of trade debts Payment of wages

______ delay is the time it takes the receiver of a check to process the payment and deposit it in a bank for collection. Multiple choice question. Mailing Recessionary Availability Processing

Processing

Which of the following are true about money market preferred stock? Multiple select question. This is not a popular short-term investment. This type of stock has existed since the 1940s. The dividend is reset every 49 days. This type of stock has less volatility than ordinary preferred stock.

The dividend is reset every 49 days. This type of stock has less volatility than ordinary preferred stock.

Which of the following are motives for holding cash? Multiple select question. The transaction motive The speculative motive The investment motive The precautionary motive

The transaction motive The speculative motive The precautionary motive

What is the main objective of cash management? To keep the investment in cash as low as possible To keep the investment in cash as high as possible To keep the cash balance at zero

To keep the investment in cash as low as possible

What securities are generally used in repurchase agreements? Multiple choice question. Corporate bonds Currency options Common stocks Treasury bills

Treasury bills

Disbursement float causes ______ in the firm's book balance but ______ in its available balance. Multiple choice question. no change; a decrease a decrease; no change an increase; no change an increase; a decrease

a decrease; no change

The sum of total collection and disbursement floats is the ______ float. Multiple choice question. total underwater net residual

net

When a firm holds cash in excess of some necessary minimum, it incurs a(n) ______ cost. Multiple choice question. regulatory agency opportunity sunk

opportunity

Cash disbursement refers to the ______ of cash. Multiple choice question. inflow outflow conservation overflow

outflow

Firms may accumulate temporary investments in marketable securities for _____. Multiple select question. a large return on investment plant construction programs the safety of their cash dividend payments

plant construction programs dividend payments

If the available balance exceeds the book balance, then the net float is _____. Multiple choice question. zero negative positive

positive

The ________ motive for holding cash is the need to hold cash as a safety margin to act as a financial reserve.

precautionary

If cash levels are too low, a firm will _____. Multiple choice question. be able to invest in long-term opportunities be able to reduce the costs of financial distress attract additional customers run out of cash too often

run out of cash too often

Two of the most important reasons firms have temporary cash surpluses are _____. Multiple select question. timing the market for investments maintenance of safety stocks seasonal firm activities financing of planned expenditures

seasonal firm activities financing of planned expenditures

The Miller-Orr model assumes that the cash balances fluctuate randomly and that the average change is

zero

A _____ account is a disbursement account in which a firm transfers money from a master account as needed to cover checks presented for payment. Multiple choice question. zero-balance declining-balance straight-line double-balance

zero-balance

If a firm receives a check for $50,000, its available balance will increase immediately by ______ and its book balance will increase immediately by ______. Multiple choice question. $50,000; $50,000 zero; $50,000 zero; zero $50,000; zero

zero; $50,000

Which of the following are options for transferring cash to a concentration bank? Multiple select question. Armored trucks ACH transfers Depository transfer checks Wire transfers

ACH transfers Depository transfer checks Wire transfers

Which of the following is not an additional consideration in regards to cash management? Multiple choice question. The probability that borrowing is more expensive than selling marketable securities For large firms, trading costs of buying/selling securities are high compared to opportunity costs of holding cash. Borrowing will depend on management's desire to hold low cash balances.

For large firms, trading costs of buying/selling securities are high compared to opportunity costs of holding cash.

What is the basic cost of the collection float? Multiple choice question. Interest earned on cash currently in circulation Fees paid to collection agents The opportunity cost of not being able to use the cash

The opportunity cost of not being able to use the cash

Some level of cash holding is needed to serve as a buffer since cash inflows and outflows _____. Multiple choice question. are perfectly matched are not perfectly synchronized cannot be forecasted

are not perfectly synchronized

Marketable securities are sometimes referred to as _____. Multiple choice question. bonds receivables or payables fixed assets cash equivalents

cash equivalents

Lockboxes enable a firm to get its receipts ______ faster. Multiple select question. bundled cleared processed factored deposited

cleared processed deposited

The basic cost of ______ float to the firm is simply the opportunity cost of not being able to use the cash. Multiple choice question. revised disbursement availability collection

collection

A minimum ________ - balance is a requirement that imposes a lower limit on the level of cash a firm holds.

compensating

Bond ratings by major agencies, such as Standard and Poor's, rate bonds on their ______ risk. Multiple choice question. default reinvestment interest rate liquidity

default

Checks written by a firm generate ______ float. Multiple choice question. disbursement collection unusual clearance

disbursement

True or false: The only way to satisfy the speculative motive is to hold cash. True False

false

The difference between the available balance and the ledger balance is called the ______. Multiple choice question. drift lag sink float

float

______ management involves controlling the collection and disbursement of cash. Multiple choice question. Credit Derivatives Float Treasury

float

All else equal, firms that invest in long-term securities are accepting ______ risk than firms that invest in short-term securities. Multiple choice question. greater less no more or less

greater

The advantages of pooling cash are that it ______. Multiple select question. improves negotiating ability on short-term investments enhances the firm's balance sheet and income statement reduces the number of accounts to be tracked

improves negotiating ability on short-term investments reduces the number of accounts to be tracked

Money market instruments are an example of short-term ______ securities. unmarketable unregulated principled marketable

marketable

Cash collected at the point of sale is referred to as _____. Multiple choice question. cash collection accounts receivable over-the-counter collection credit collection

over the counter collection

The need for a safety supply to act as a financial reserve represents the _____ motive. speculative precautionary transactions acquisitive

precautionary

Cash is collected from _____. Multiple select question. drawing money out of retained earnings product sales asset sales new financing collecting money on payables

product sales asset sales new financing

If a firm holds too little cash, it may have to: sell marketable securities buy stocks and bonds ask for an increase in its credit rating borrow

sell marketable securities borrow

If a firm sets aside some cash to take advantage of an anticipated favorable change in oil prices, the firm has a ________ motive for holding cash: Multiple choice question. speculative precautionary investment transaction

speculative

The need to hold cash in order to take advantage of favorable changes in interest or currency rates is called the _____ motive. speculative acquisitive precautionary transaction

speculative

The decision to use a bank cash management service that incorporates lockboxes and concentration banks depends on _____. Multiple select question. the speed of the postal system local bank regulations the reputation of local banks customer location

speed of the postal system customer location

The marketability of securities refers to _____. Multiple select question. the liquidity of assets how easy it is to hire a money market manager the high fees of buying and selling securities how quickly assets can be converted to cash

the liquidity of assets how quickly assets can be converted to cash

There is no real need to hold cash itself for precautionary reasons because _____. the value of money market instruments is relatively certain stocks and bonds can be easily sold retained earnings are difficult to access money market instruments are highly liquid

the value of money market instruments is relatively certain money market instruments are highly liquid

The size of the float depends on the _____. Multiple select question. time delay involved discount rate interest rates dollar amount involved

time delay involved dollar amount involved

The effect of electronic funds transfers and other high-speed paperless payment mechanisms reduces the ______ demand for cash. Multiple choice question. transaction inelastic legal unknown

transaction

The need to have cash on hand to pay bills fits the _____ motive. Multiple choice question. precautionary transaction acquisitive speculative

transaction

If a firm receives a check for $50,000, its collection float will change by _____. Multiple choice question. +$50,000 -$50,000 zero

+$50,000 Reason: Collection float is available balance - book balance. Book balance increases when the check is received, so receiving a check for $50,000 would result in book balance being $50,000 greater than available balance.

Which of the following are true about commercial paper? Multiple select question. Firms that issue commercial paper do not repurchase it. It has no especially active secondary market. Its default risk depends on the interest rate. Its marketability can be low.

It has no especially active secondary market. Its marketability can be low.

Which of the following are true about a zero-balance account? Multiple select question. The master account and the subaccounts are totally separate. It involves a set of subaccounts. It involves a master account. Both master and subaccounts maintain safety stocks.

It involves a set of subaccounts. It involves a master account.

Which of the following is a good business disbursement practice? Multiple choice question. Maximizing disbursement float Maintaining no more than the minimum amount of money necessary to pay bills Minimizing disbursement float Maintaining no less than the minimum amount of money necessary to pay bills

Maintaining no more than the minimum amount of money necessary to pay bills

Which of the following can be used to satisfy the speculative motive? Accounts receivable Retained earnings Marketable securities Borrowing ability

Marketable securities Borrowing ability

Interest earned on money market securities that are not some kind of government obligation (federal or state) is taxable at which levels? Multiple select question. State Local Federal International

State Local Federal

Which of the following is not a motive for holding cash? The speculative motive The precautionary motive The transaction motive The acquisitive motive

The acquisitive motive

Assume a firm has a balance of $100,000 and then writes a check for $25,000. Which of the following are true? Multiple select question. The firm's float becomes $25,000. The firm's book balance remains constant at $100,000. The firm's float becomes $75,000. The firm's book balance immediately falls by $25,000.

The firm's float becomes $25,000. The firm's book balance immediately falls by $25,000.

Which of the following is not an implication of the BAT and Miller-Orr models? Multiple choice question. The greater the interest rate, the lower the target cash balance. The greater the order cost, the higher the target cash balance. The greater the order cost, the lower the target cash balance.

The greater the order cost, the lower the target cash balance.

Money market securities generally have _____. Multiple choice question. a high overall risk no risk whatsoever a low default risk extreme default risk

a low default risk

Cash balances are often held at commercial banks in order to _____. Multiple choice question. reduce dependency on foreign exchange rates compensate for banking services earn the highest rate of return

compensate for banking services

The movement of cash from different banks and different accounts into a main account is called cash ______. Multiple choice question. concentration diversification payments lockup

concentration

EDI helps _____. Multiple select question. consumers pay bills with automatic debiting companies electronically transfer financial information businesses and consumers increase their use of postal services

consumers pay bills with automatic debiting companies electronically transfer financial information

Stated concisely, the basic objective in cash management is to collect _____. late and pay early early and pay early early and pay late late and pay late

early and pay late

For both the BAT and Miller-Orr models, all else being equal, the greater the interest rate, the _____. Multiple choice question. less the need for cash management lower the target cash balance higher the target cash balance greater the order cost

lower the target cash balance

For a given change in level of interest rates, the prices of longer-maturity securities will change ____ than those of shorter-maturity securities. Multiple choice question. more less

more

Interest earned on ________ securities is exempt from federal taxes. Multiple choice question. all short-term corporate all long-term municipal

municipal

Which of the following are true about preauthorized payment arrangements? Multiple select question. The payment dates are fixed in advance. Payments are manually processed. Collection delays are not affected. The payment amounts are fixed in advance.

The payment dates are fixed in advance. The payment amounts are fixed in advance.

The main drawbacks of EDI are that it is _____. Multiple select question. expensive heavily regulated computer "unfriendly" complex to set up

expensive complex to set up

To slow disbursements, one can _____. Multiple select question. reduce banking delay reduce availability delay increase processing delay increase mailing time

increase processing delay increase mailing time

The opportunity cost of holding cash balances at banks is the _____. Multiple choice question. rate those funds could be earning in the stock market interest income that could be earned from the next best use of those funds rate those funds could be earning in company projects

interest income that could be earned from the next best use of those funds

The problem with running out of cash and having to borrow or sell marketable securities is that _____. Multiple choice question. it is costly it violates financial rules it violates company policy there is a lot of paperwork

it is costly

The effects of Check 21 are that _____. Multiple select question. a check can never clear on the same day it is written out-of-state checks take longer to clear it significantly reduces float banks can transmit electronic images of checks

it significantly reduces float banks can transmit electronic images of checks

Certificates of deposits in excess of $100,000 are called ______ CDs. Multiple choice question. virtual long-term humongous jumbo

jumbo

The top reasons that e-commerce and extranets will not replace EDI soon are _____. Multiple select question. federal and state regulations lack of standardization security concerns high interest rates

lack of standardization security concerns

If you have disbursement float, then your book balance is _____. Multiple choice question. less than your available balance equal to your available balance negative greater than your available balance

less than your available balance

The greater the marketability of a security, the higher its _____. Multiple choice question. liquidity resilience dividends probability of default

liquidity

The practice of ______ management is more general than cash management. Multiple choice question. lucidity rapidity MBO liquidity

liquidity

______ management concerns the optimal quantity of liquid assets a firm should have on hand. cash derivative liquidity investment

liquidity

Many firms use special post office locations called ______ to intercept payments and speed up cash collection. Multiple choice question. collection agencies stealth rovers lockboxes

lockboxes

Which of the following are true with respect to mailing time? Multiple select question. Mailing time is not a component of collection float. When it comes to float management, mailing time is not important. Mailing time is a component of disbursement float.

Mailing time is not a component of collection float. Mailing time is a component of disbursement float.

______ delay refers to the time required to clear a check through the banking system. Multiple choice question. Central Federal Reserve Availability FDIC

Availability

A straightforward model that is useful for illustrating the factors in cash management and current asset management is the _____ model.

BAT

When a company receives payments via checks in the mail, which components of collection time become relevant? Multiple select question. Bad debt collection delays Bank availability delays Check processing delays Mail delays

Bank availability delays Check processing delays Mail delays

Which of the following are true about using uncollected balances? Multiple select question. Banks charge a penalty rate for that practice. Banks are fully aware of when this is happening. There are legal and ethical problems with this practice.

Banks charge a penalty rate for that practice. There are legal and ethical problems with this practice.

BAT in the BAT model stands for _____. Multiple choice question. Broad-Asset-Trends Baumol-Allais-Tobin Better-Asset-Turnover Banks-And-Taxes

Baumol-Allais-Tobin

Which of the following are true? Multiple select question. Before a firm writes a check, its float equals zero. Before a firm writes a check, its float is positive. When a firm writes a check, its book balance does not change. When a firm writes a check, its book balance immediately falls.

Before a firm writes a check, its float equals zero. When a firm writes a check, its book balance immediately falls.

Which of the following are types of money market securities? Multiple select question. Certificates of deposit U.S. T-bills Corporate bonds Stocks

Certificates of deposit U.S. T-bills

Which of the following are true about lockboxes? Multiple select question. A firm cannot have more than one lockbox. Lockboxes are checked once a day. Customers mail checks to post office boxes rather than to a firm. Lockboxes are maintained by a local bank.

Customers mail checks to post office boxes rather than to a firm. Lockboxes are maintained by a local bank.

What type of risk refers to the probability that interest and principal will not be paid in the promised amounts on the due dates? Multiple choice question. Principal repayment risk Default risk Reinvestment rate risk Interest rate risk

Default risk

True or false: In a cash concentration system, only one concentration bank is typically used. True false question. True False

False

True or false: It is not a good strategy to carry temporary cash surpluses because cash does not generate any return. True false question. True False

False

True or false: The decision to use a bank cash management service depends on a firm's WACC. True false question. True False

False

In which case would a firm probably choose wire payments? Multiple choice question. Fewer and smaller payments Fewer but larger payments More and larger payments More and smaller payments

Fewer but larger paymetns

What creates a strong incentive for a corporation to invest in the preferred stock of another corporation? Multiple select question. Stable prices High dividend yields No taxes Low taxes

High dividend yields Low taxes

Which of the following is not considered an ethical and/or economic problem with increasing disbursement float? Multiple choice question. Loss of discount for early payment Poor relations with suppliers Inventory shrinkage

Inventory Shrinkage

The ______ model assumes that the cash balances fluctuate randomly and that the average change is zero. Multiple choice question. BAT Miller-Orr Liquidity Modigliani-Miller

Miller-Orr

Which of the following constitutes an ethical and/or legal problem with increasing disbursement float? Multiple choice question. Not paying bills when they are due Waiting till the last day of the discount period to take the discount If no discount, waiting to pay till the last possible due date Giving up the early payment discount

Not paying bills when they are due

What considerations does borrowing cash introduce? Multiple select question. Borrowing is more likely if a manager wants to hold high cash balances The probability that borrowing is more expensive than selling marketable securities Borrowing will depend on management's desire to hold low cash balances.

The probability that borrowing is more expensive than selling marketable securities Borrowing will depend on management's desire to hold low cash balances.

Which of the following are true about U.S. Treasury bills? Multiple select question. They are sold directly, not by auction. They are sold every 30 days. They are obligations of the U.S. government. They mature in 30, 90, or 180 days.

They are obligations of the U.S. government. They mature in 30, 90, or 180 days.

Which of the following are true with regard to the sale of U.S. Treasury bills? Multiple select question. They are sold by auction. They are sold weekly. They are sold only to foreign governments. They are not sold to general public.

They are sold by auction. They are sold weekly.

Which one of the following is true about repurchases agreements? Multiple choice question. They represent sales of T-bills by the US Treasury. They are very short term, lasting overnight to a few days. They are bought at a high price and sold back later at a lower price.

They are very short term, lasting overnight to a few days.

Which of the following are true about short-term tax-exempt securities? Multiple select question. They have more default risk than U.S. Treasury issues. They are less marketable than U.S. Treasury issues. Their pretax yields are higher than U.S. Treasury issues.

They have more default risk than U.S. Treasury issues. They are less marketable than U.S. Treasury issues.

The cash balance in a firm's bank account that can be spent is called its ______ balance. Multiple choice question. theoretical encumbered available restricted

available

The net float is the difference between the ______ balance and the ______ balance. Multiple choice question. book; ledger available; collected collected; disbursement available; book

available; book

A firm should be more concerned with its net float and available balance than with its ______ balance because it can keep a lower cash balance. Multiple choice question. divisional book compensating accrual

book

For outgoing checks, what matters is the date the account is ______, not when the recipient is granted ______. Multiple choice question. available; credit disbursed; credit debited; availability disbursed; availability

debited; availability

Electronic funds transfers (increase/decrease) the transaction demand for cash.

decrease

Product sales and new financing are examples of cash ______. Multiple choice question. inflows outlays outflows disbursements

inflows