Question 1

Due to a ﬂood in the Canadian prairies, cheques received by ﬁrms in the affected area are not deposited for several days. This represents an increase in the ____________ ﬂoat for the
Depositing ﬁrm.

Accepted Answer

The term for the delay in availability of funds due to a delay in cheque clearance is known as collection float. Therefore, the best choice would be D) Collection.

Question 2

A ﬁrm has $23,630 in outstanding cheques that have not cleared the bank. The ﬁrm also has $31,000 in deposits that have been recorded by the ﬁrm but not by the bank. The current available
Balance is $14,710. What is the status of the net ﬂoat?

Accepted Answer

The net float is calculated as the difference between the deposits in transit and the outstanding checks. Here, it is $31,000 (deposits) - $23,630 (checks) = $7,370, which is a net collection float.

Question 3

The motive behind holding cash for events such as a major storm causing uninsured damage is called the _____ motive.

Accepted Answer

The term “precautionary” motive refers to the holding of cash for emergency purposes, such as for unexpected and uninsured damages resulting from natural disasters, such as a major storm. The other choices are not appropriate in this context. The speculative motive is holding cash for investment purposes, the reserve motive is holding cash to meet unexpected expenses, and the transaction motive is holding cash to meet routine expenses. The concentration motive is a term not commonly used in financial management.

Question 4

In an ideal world, all of your bills would come due on exactly the same day you get paid. If this were true, then the level of cash you would need to hold to meet your ___________ needs would be
Relatively low during the month.

Accepted Answer

Transactions refers to the cash needed for day-to-day expenses such as bills. If all bills were due on the same day as pay, then the amount of cash needed for transactions would be relatively low throughout the month.

Question 5

Your company has an available balance of $5,980. A deposit of $1,470 that was made this morning is not yet included in the bank's balance. There are also 2 checks outstanding with a value of $495
Each. What is the net ﬂoat?

Accepted Answer

The net float is calculated as the difference between the deposit float and the disbursement float. The deposit float is $1,470, and the disbursement float is $990 (2 checks of $495 each). The net float is $1,470 - $990 = $480, which is a net collection float.

Question 6

Your ﬁrm has an available balance of $1,380 and a book balance of $1,210. The deposit of $560 that was made today is not yet included in the bank's balance. There are also 5 cheques outstanding
With a total value of $730. What is the net ﬂoat?

Accepted Answer

The answer of Your ﬁrm has an available balance of...

Question 7

A ﬁrm has $33,080 in outstanding checks that have not cleared the bank. The ﬁrm also has $26,000 in deposits that have been recorded by the ﬁrm but not by the bank. The current available
Balance is $19,290. What is the status of the net ﬂoat?

Accepted Answer

The net float is calculated as the difference between the outstanding checks and the deposits not yet recorded by the bank: $33,080 (outstanding checks) - $26,000 (deposits) = $7,080. Since the outstanding checks exceed the deposits, it is a net disbursement float.

Question 8

The CEO of a ﬁrm just learned that a small, but highly progressive, competitor is for sale. This is an unexpected opportunity and one that the CEO would like to pursue immediately. The motive behind
Holding cash for such an event is called the ____ motive.

Accepted Answer

The speculative motive for holding cash refers to keeping cash on hand to take advantage of unexpected opportunities, such as acquiring a competitor.

Question 9

A ﬁrm has $18,020 in outstanding cheques that have not cleared the bank. The ﬁrm also has $23,500 in deposits that have been recorded by the ﬁrm but not by the bank. The current available
Balance is $2,640. What is the status of the net ﬂoat?

Accepted Answer

The net float is calculated as the difference between the amount of outstanding cheques and the amount of unrecorded deposits. 
Net float = Outstanding cheques - Unrecorded deposits 
Net float = $18,020 - $23,500 = -$5,480 
Since the net float is negative, it means that the available balance is less than the true or book balance, and the company has written cheques for more money than it currently has in the bank. 
Therefore, the net collection float is $5,480, which means that the company needs to wait for the outstanding cheques to clear the bank before it can use these funds.

Question 10

The Global Light Company has regional oﬃces located in ﬁve provinces and services only three national customers. Each oﬃce is responsible for processing its own cheques to cover payroll,
Purchases, and other costs. The home oﬃce controls the investments and loans for the entire ﬁrm.
All payments from the three customers are submitted directly to the home oﬃce, which is
Conveniently located near the home oﬃces of its customers. Which one of the following options
Appears best suited for use in this situation?

Accepted Answer

A master account plus one zero-balance account for each office allows centralized control of funds while enabling each regional office to manage its own disbursements efficiently.

Question 11

Money market securities are debt securities which have a maturity of _____________.

Accepted Answer

Money market securities are short-term debt instruments that typically have a maturity of one year or less, making them highly liquid and considered a safe investment.

Question 12

The target cash balance can be deﬁned as the point where the:

Accepted Answer

The target cash balance is the point where the opportunity costs of holding cash are equal to the trading costs, balancing the costs of holding too much cash with the costs of converting other assets to cash.

Question 13

Financial slack is a term used by economists to identify the funds available from cash and near-cash holdings, as well as the ability to borrow readily to meet day-to-day obligations and to take
Advantage of unexpected opportunities. As such, the maintenance of ﬁnancial slack represents a
Combination of the ____________ and ____________ motives for holding cash [Keynes].

Accepted Answer

The answer of Financial slack is a term used by...

Question 14

CBA, Inc., a leading retailer of consumer goods, keeps excess cash on hand in October to pay for its increase in inventory prior to the holiday season. CBA is keeping this cash for:

Accepted Answer

CBA, Inc. keeps excess cash on hand to pay for its increase in inventory prior to the holiday season, which is a transaction reason. This is because the cash is intended to cover upcoming, planned expenses related to their business operations.

Question 15

Which one of the following will decrease a ﬁrm's collection time?

Accepted Answer

Encouraging customers to use debit cards rather than cheques decreases collection time because electronic payments are processed faster than cheques, which require time for mailing and clearing.

Question 16

Which of the following is true regarding the opportunity costs of holding cash and the size of the cash balance held by a ﬁrm?

Accepted Answer

The higher the cash balance a firm holds, the higher the opportunity cost because the firm is foregoing potential returns from investing that cash elsewhere.

Question 17

The CFO of ABC, Inc., a large multi-branch company, wants to manage all of the company disbursements from one bank account while also minimizing the collection ﬂoat. ABC has twenty
Customers that submit recurring annuity payments each quarter. Ignoring costs, which one of the
Following would best meet the requirements of the CFO assuming that all of the following options
Are viable?

Accepted Answer

A preauthorized payment arrangement allows for efficient management of disbursements from a single account and minimizes collection float by automating the payment process.

Question 18

_________ are special post oﬃce boxes often set up by the ﬁrm to expedite the receipt and processing of its accounts receivables payments.

Accepted Answer

Lockboxes are special post office boxes that allow a company to receive payments directly from its customers. This expedites the receipt and processing of accounts receivables payments, as the payments are sent directly to the lockbox and can be quickly processed by the firm.

Question 19

The present value of eliminating ﬂoat is equal to the amount of ______________.

Accepted Answer

The answer of The present value of eliminating ﬂoat is...

Question 20

The manager of a seasonal products ﬁrm keeps excess cash on hand, particularly after the holiday season, to take advantage of retailers looking to sell excess inventory at below cost. The manager
Is holding cash for _________________.

Accepted Answer

The answer of The manager of a seasonal products ﬁrm...

Quiz 19: Cash and Liquidity Management

Due to a ﬂood in the Canadian prairies, cheques received by ﬁrms in the affected area are not deposited for several days. This represents an increase in the ____________ ﬂoat for the Depositing ﬁrm.

A ﬁrm has $23,630 in outstanding cheques that have not cleared the bank. The ﬁrm also has $31,000 in deposits that have been recorded by the ﬁrm but not by the bank. The current available Balance is $14,710. What is the status of the net ﬂoat?

The motive behind holding cash for events such as a major storm causing uninsured damage is called the _____ motive.

In an ideal world, all of your bills would come due on exactly the same day you get paid. If this were true, then the level of cash you would need to hold to meet your ___________ needs would be Relatively low during the month.

Your company has an available balance of $5,980. A deposit of $1,470 that was made this morning is not yet included in the bank's balance. There are also 2 checks outstanding with a value of $495 Each. What is the net ﬂoat?

Your ﬁrm has an available balance of $1,380 and a book balance of $1,210. The deposit of $560 that was made today is not yet included in the bank's balance. There are also 5 cheques outstanding With a total value of $730. What is the net ﬂoat?

A ﬁrm has $33,080 in outstanding checks that have not cleared the bank. The ﬁrm also has $26,000 in deposits that have been recorded by the ﬁrm but not by the bank. The current available Balance is $19,290. What is the status of the net ﬂoat?

The CEO of a ﬁrm just learned that a small, but highly progressive, competitor is for sale. This is an unexpected opportunity and one that the CEO would like to pursue immediately. The motive behind Holding cash for such an event is called the ____ motive.

A ﬁrm has $18,020 in outstanding cheques that have not cleared the bank. The ﬁrm also has $23,500 in deposits that have been recorded by the ﬁrm but not by the bank. The current available Balance is $2,640. What is the status of the net ﬂoat?