Which of the Following Practices Best Illustrates Efficient Management of Cash

question 63

Multiple Choice

Which of the following practices best illustrates efficient management of cash?

• A)The accountant records all cash receipts and payments when reconciling the bank account at the end of each month.
• B)Management arranges for a loan to cover projected cash shortages during the production phase of the business cycle each year.
• C)Cash budgets (forecasts)are prepared only one month in advance in order to avoid the need for constant revision.
• D)All cash resources are held in the checking account to maximize liquidity.

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Definitions:

Political Risk

In international business, the chance that the value of a firm’s investment in a foreign country will be reduced by political actions of either the foreign government or terrorists.

Exchange Rate Risk

The risk that international trade dealings will earn less than expected because of movement in exchange rates.

Economic Risk

The possibility of loss caused by macroeconomic or market conditions, such as changes in interest rates or recessions.

Forward Rate

The agreed upon exchange rate for a currency transaction that will occur at a future date.