Working Capital Management Quiz

How can a company use credit insurance to manage credit risk?

• By reducing credit limits
• By increasing payment terms
• By obtaining guarantees from customers
• By obtaining a guarantee from a third party against nonpayment

What role does the treasurer typically play in credit policy management?

• No role
• Indirect role
• Minor role
• Direct control

Which of the following is NOT a credit control measure mentioned in the passage?

• Perfecting a security interest in goods sold
• Requiring guarantees
• Decreasing payment terms
• Obtaining credit insurance

How can a treasurer reduce the probability of default by customers?

• By issuing credit based on credit scoring
• By avoiding credit insurance
• By not requiring guarantees
• By offering financing by a third party

What is one possible reason for a company to adopt a loose credit policy?

• To reduce market share
• To increase product margins
• To decrease sales
• To tighten working capital

What is one possible reason for a company to adopt a loose credit policy?

• To reduce market share
• To increase product margins
• To decrease sales
• To tighten working capita

How does a tight credit policy typically affect a company's investment in receivables?

• Decreases it
• Increases it
• Has no effect
• Reduces revenue

What scenario represents the easiest situation for a treasurer in terms of working capital management?

• Increasing sales
• Declining sales
• Peak sales season
• Stable sales

In the scenario where a company's sales continue to increase over time, what is the likely impact on working capital?

• Cash levels remain stable
• Inventory and receivable levels decrease
• Cash balance becomes zero
• All available cash is used to pay for working capital

When a company's sales peak during a specific period, what tends to happen to its working capital components?

• Accounts receivable decrease, while cash increases
• Inventory and accounts payable rise, while cash declines
• Cash and accounts receivable both increase
• Accounts payable decrease, while inventory rises