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raises capital for other companies through securities operations in the debt and equity
markets.

It is important to understand that the interest cost of capital is one of the major costs in any firm.

2.

Select one:

a.

Lowest Working Capital

b.

Minimize Rate of Interest

c.

Smooth Operating Cycle

d.

Optimal Return on Current Asset Investment

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is much higher because they have fewer assets to move around.

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Investors, lenders, and managers all look to a company's

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The bank pays you a fixed rate of interest, based on the fed funds rate. You can add or withdraw
whenever you like.

Select one:

a.
Short-term Bond Funds

b.

Certificates of Deposit

c.

Money Market Funds

d.

Savings Accounts

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These are mutual funds that invest in a variety of short-term investments.

Select one:
a.

Short-term Bond Funds

b.

Certificates of Deposit

c.

Money Market Funds

d.

Money Market Accounts

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Arises from imperfect correlation in the adjustment of the rates earned and paid on different
instruments with otherwise similar repricing characteristics.

Select one:

a.

Yield curve risk

Optionality

c.

Repricing risk

d.

Basis risk

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It means the cycle should never stop for the lack of liquidity whether it is for buying raw material,
salaries, tax payments etc.

Select one:

a.

Lowest Working Capital

Minimize Rate of Interest

c.

Smooth Operating Cycle

d.

Optimal Return on Current Asset Investment

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This is the traditional approach to interest rate risk assessment taken by many banks.

Select one:

a.

Earnings perspective

b.
Embedded losses

c.

Economic value perspective

d.

Gap analysis

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Arise when a firm sells goods and services to the customers on credit.

Select one:

a.

Accounts Payable Management

b.

Accounts Receivable Management

Inventory Management

d.

Cash Management

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The capital required in business to run day to day business operations is said to be ---------- ----------- of
the business.

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This is usually done by comparing

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As financial intermediaries, banks encounter interest rate risk in several ways.

Select one:

a.

Repricing risk

b.

Basis risk

c.

Yield curve risk

d.

Optionality

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Accounts receivable arise when a firm sells goods and services to the customers on account.
Select one:

a.

cash management

b.

Accounts Receivable management

c.

accounts payable management.

d.

inventory management

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The bank pays you a slightly higher fixed rate of interest. In return, you must keep a minimum amount
deposited.

Select one:

a.
Certificates of Deposit

b.

Money Market Accounts

c.

Money Market Funds

d.

Short-term Bond Funds

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There are three ratios that are important in working capital management: The working capital ratio or
current ratio;

Select one:

a.

Benefits of Working Capital Management

Ratio Analysis

c.

The Collection Ratio

d.

Types of Working Capital Management Ratios

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Is similar to a forward, but it provides the counterparties with less risk than a forward contract

Select one:

a.

Interest rate swap

b.

Forward contract
c.

Futures contract

d.

FRA

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Fixed-income investments

Select one:

a.

Individual investors

b.

Fixed-income security

c.

Securities
d.

Derivatives

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Is based on the idea of a forward contract, where the determinant of gain or loss is an interest rate.

Select one:

a.

Forward contract

b.

FRA

c.

Interest rate swap

d.

Futures contract
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Liquidity Manager as one of the CFO's important tasks to ensure the --------------- --------- of the
company.

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The notional principal. This option will "cap," or place an upper limit, on the holder's

Answer:

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Many investors encounter interest management derivative instruments via

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Question 23

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Interest rate management options are option contracts for which the

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Repricing mismatches can also expose a bank to changes in the slope and shape

Select one:

a.

Optionality

b.

Repricing risk
c.

Basis risk

d.

Yield curve risk

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This may be achieved by favorable credit terms with accounts payable and receivables both, faster
production cycle, effective inventory management etc.

Select one:

a.

Smooth Operating Cycle

b.

Optimal Return on Current Asset Investment

Minimize Rate of Interest

d.

Lowest Working Capital

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An additional and increasingly important source of interest rate risk arises from the options embedded
in many bank assets, liabilities and OBS portfolios.

Select one:

a.

Yield curve risk

b.

Optionality

c.
Repricing risk

d.

Basis risk

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Variation in market interest rates can also affect the economic value of a bank's assets, liabilities and
OBS positions.

Select one:

a.

Economic value perspective

b.

Earnings perspective

c.

Gap analysis
d.

Embedded losses

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It’s a safer strategy where the apart from financing the whole of the permanent working capital, it
finances a part of temporary working capital also.

Select one:

a.

Restricted Policy / Aggressive policy

b.

Conservative

c.

Moderate Policy
d.

Relaxed Policy / Conservative policy

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These mutual funds invest in one-year to four-year low-risk bonds. Most of their holdings are corporate
bonds.

Select one:

a.

Short-term Bond Funds

b.

Certificates of Deposit

c.

Money Market Funds

Money Market Accounts

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Simple maturity/repricing schedules can be used to generate simple indicators of the interest rate risk
sensitivity of both earnings and economic value to changing interest rates.

Select one:

a.

Earnings perspective

b.

Economic value perspective

c.

Gap analysis

d.
Embedded losses

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looks a lot like a combination of FRAs and involves an agreement between counterparties to
exchange sets of future cash flows.

Select one:

a.

FRA

b.

Interest rate swap

c.

Futures contract

d.

Forward contract

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To speed up the receipt and processing of receivables, the SBA suggests several steps.

Select one:

a.

Positive cash flow

b.

Collecting receivables

c.

Cash Flow Basics

d.

Profit versus Cash Flow

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Bills payable and creditors are a very crucial part of the business being a major source of financing for
working capital requirements.

Select one:

a.

Accounts Receivable Management

b.

Inventory Management

c.

Cash Management

d.

Accounts Payable Management

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These products earned super-low interest rates. To gain a higher yield

a.

Derivatives

b.

Individual Investors

c.

Fixed-income security

d.

Securities

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The most common type of interest rate swap is a

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The earnings and economic value perspectives discussed thus far focus on how future changes in
interest rates may affect a bank's financial performance.

Select one:

a.

Economic value perspective

b.

Gap analysis

c.

Earnings perspective

d.

Embedded losses

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However, in circumstances of unpredictability, sometimes not

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Question 38

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Net working capital is the aggregate of ------- ---------- minus current liabilities.

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In many businesses, you have a liquidity crunch at one point of time and excess liquidity at another.

Select one:

a.

Minimize Rate of Interest

Smooth Operating Cycle

c.

Optimal Return on Current Asset Investment

d.

Lowest Working Capital

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As regulation and technology in the financial sector changes, at an ever increasing pace, and the
business landscape becomes increasingly there is more pressure bon corporates
to efficiently manage cash.

Answer: