treasury quiz

Poling concepts

Cash concentration requires that a company create a cash pool.

This comprises a cluster of subsidiary bank accounts and a concentration account.

Physical sweeping

Funds physically flow from the subsidiary accounts into the concentration

Notional pooling

cash balances in the subsidiary accounts can be concentrated in the master account only within the bank's records, with the cash remaining in the subsidiary accounts.

Cash border cash pool

If a pooling arrangement includes accounts located in more than one country,

Single currency center model

company may elect to pool cash within the home country of each currency (e.g., U.S. dollars are pooled in the United States),

Cash concentration

Cash in multiple accounts is pooled

corporate treasury management techniques involving the transfer of all funds from different accounts

Centralization

Centralized or decentralized, only to top management

Decentralized organizations

Delagated to responsible officers in different organizations

Overjet

an extension of credit from financial institution to its customers

Interest expense allocation

• Some tax jurisdictions may require the parent company to record interest expense on intercompany loans associated with the transfer of cash in a physical sweeping arrange-ment.

Central bank reporting

• Some central banks require that they be sent reports on transfers between resident and nonresident accounts.

Notional pooling

mechanism for calculating interest on the combined credit and debit balances of accounts

Physical sweeping

When a company sets up a zero-balance account, its bank automatically moves cash from that account into a concentration account, usually within the same bank.

Constant balancing

maintain a predetermined minimum balance in a subsidiary account,

Small company policy

1. The company shall engage in cash concentration with a " physical sweeping" strategy.

Large company policy

1. The company shall engage in cash concentration with a "cross-currency notional pooling" strategy.

Working capital

defined as a company's current assets minus its current liabilities.

Tight credit policy

common in the reverse circumstances; product margins are small, or the industry is an old one with little room to gain market

SWIFT

(Society for Worldwide Interbank Financial Telecommunication)

• Subsidiary-level financial reporting requirements.

• A subsidiary may have an outstanding loan, for which a bank requires the periodic production of a balance sheet.

Lessor

Property owner

Interest income allocation

• company may elect to allocate the interest earned at the concentration account level back to the subsidiaries whose accounts contributed cash to the concentration account.

Tight credit policy

common in the reverse circumstances; product margins are small, or the industry is an old one with little room to gain market share.

Loose credit policy

common in companies having a certain mix of characteristics.

Lessee

Tenant

Drop shipping

Under this system, a company receives an order from a customer and contacts its supplier with the shipping informa-tion, who in turn ships the product directly to the customer.

Cross-docking

when an item arrives at the receiving dock, it is immediately moved to a shipping dock for delivery to the customer in a different truck.

Inventory management

the least liquid and therefore tends to be a cash trap.

Inventory

frequently the largest component of a company's working capital; in such situations, if inventory is not being used up by operations al a reasonable pace, then a company has invested a large part of its cash in an asset that may be difficult to liquidate in short order.

Payment term

This is certainly an advantage for the treasurer, since extended terms equate to fiee funding by suppliers.

Inventory

most dangerous component of working capital because it can build rapidly unless properly controlled and can be quite difficult to convert back into cash.

Substitution of parts

significant bill of materials issue from the perspective of inventory reduction

secured and unsecured

Types of debt

Commercial paper

unsecured debt that is issued by a company and has a fixed maturity ranging from 1 to 270 days.

Factoring

An intermediary agent that provides cash or financing to companies by purchasing their accrued receivables

a finance company agrees to take over a company's accounts receivable collections and keep the money from those collections in exchange for an immediate cash payment to the company.

80 percent

lender will typically loan a maximum of only

loan asso ciated

lender will require the company to pay back

field warehousing arrangement,

finance company (usually one that specializes in this type of arrangement) will segregate a portion of a company's warehouse area with a fence.

Field warehousing

highly transaction intensive, especially when the finance company employs an on-site warehouse clerk,

Floor planning

Specialty lenders, traditional bank and finance arm of manufacturers provide short term loans to retailers to purchase item

Lender

lender may require that the price of all assets sold be no lower than the price

Lease

A contract outlining the terms under which are party agrees to rent an asset

covers the purchase of a specific asset, which is paid for by the lease provider on the company's behalf.

Operating lease

under the terms of which the lesson carries the asset on its books and records a depreciation expense, while the lessee records the lease payments as an expense on its books.

Lessor

carries the asset on its books and records a depreciation expense,

Lessee

records the lease payments as an expense on its books.

Line og credit

commitment from a lender to pay a company whenever it needs cash, up to a preset maximum level.

Asset based loan

loan that uses fixed assets or inventory as its collateral is a common form of financing by banks.

Bonds

fixed obligation to pay, usually at a stated rate of $1,000 per bond, that is issued by a corporation to investors.

Registered bond

which a company maintains a list of owners of each bond. The company then periodically sends interest payments,

coupon bond

company does not maintain a standard list of bondholders.

more easily transferable between investors, but the case of transferability makes them more susceptible to loss.

Collateral trust bond

• A bond that uses as collateral a company's security investments.

Convertible bond

• bond that can be converted to stock using a predetermined conversion ratio.

Debenture

• bond issued with no collateral. A subordinated debenture is one that specifies debt that is senior to it.

Deferred interest bonds

• A bond that provides for either reduced or no interest in the beginning years of the bond term, and compensates for it with increased interest later in the bond term.

Floor less bond/death spiral

• A bond whose terms allow purchasers to convert them to common stock, as well as any accrued interest.

Guaranteed bond

• A bond whose payments are guaranteed by another party.

Income bond

• A bond that pays interest only if income has been earned.

Mortgage bonds

• A bond offering can be backed by any real estate owned by the company

Serial bond

• A bond issuance where a portion of the total number of bonds are paid off each year, resulting in a gradual decline in the total amount of debt outstanding.

• Variable rate bond. A bond whose stated

Variable rate bond

A bond whose stated interest rate varies as a percentage of a baseline indicator, such as the prime rate.

Zero Coupon bond

• A bond with no stated interest rate. Investors purchase these bonds at a considerable discount to their face value in order to earn an effective interest rate.

Zero coupon convertible bond

• A bond that offers no interest rate on its face but allows investors to convert to stock

Convertible debt

feature allowing the holder to turn in the bond in exchange for stock when a preset strike price for the stock is reached, sometimes after a specific date. This

Bridge loan

Fo of shorter loan that is granted by lending institution

Call feature

that allows the company to buy back bonds at a set price within certain future time frames.

Stuggered buy back feature

under which it can buy back some fixed proportion of all bonds at regular intervals.

Subordinate debentures

The bondholder may also be positioned last among all creditors for repayment in the event of a liquidation