CHAPTER 6 PFM QUESTIONS &
ANSWERS
Money management is a series of decisions made over a short term period regarding
cash inflows and outflows - ANSWER TRUE
Liquitidy refers to your ability to cover any long term cash deficiencies - ANSWER
FALSE
Money management has no relationship to the personal cash flow statement -
ANSWER FALSE
You should attempt to have sufficient amount of funds in liquid assets to draw on when
your cash outflows exceed your cash inflows - ANSWER TRUE
maintaining liquid assets that you can easily access when you need funds allows you to
avoid using credit and paying finance charges - ANSWER TRUE
In general, the more liquid an investment is the higher its return - ANSWER FALSE
Liquidity is necessary because there are times during the year when your cash inflows
are not adequate to cover your cash outflows - ANSWER TRUE
To achieve both liquidity and an adequate return, you should consider investing in
only one money market investment with a fixed interest rate and a long maturity date -
ANSWER FALSE
good cash management requires some liquidity, but excessive liquidity has an
opportunity cost - ANSWER TRUE
Which of the following does money management NOT involve?
A.) series of decisions
B.) a long term time period
C.) Cash inflows
D.) cash outflows - ANSWER B. long term time period
_______ management is a series of decisions made over a short term period regarding
cash inflows and outflows - ANSWER Money
Your ability to cover any short term cash deficiencies is called - ANSWER Liquidity
A disadvantage of using credit as a source of liquidity is the - ANSWER potential cost of
finance charges
, In general, the more liquid an investment is, the _____ the return you will receive. -
ANSWER Lower
Generally, yields are ________ for securities that are exposed to ________ liquidity
risk.
A. higher;more
B. higher;less
C. lower;less
D. both A & C are corned - ANSWER D.
To achieve both liquidity and an adequate return, you should consider investing in -
ANSWER multiple money market investment with varied returns and levels of liquidity
your ability to cover short-term cash deficiencies is a measure of your - ANSWER
liquidity
a series of decisions made over a short period of time regarding cash inflows and
outflows - ANSWER Money management
ability to cover cash deficiencies - ANSWER liquidity
cash outflows are more than inflows - ANSWER cash deficiency
Which of the following is NOT a money market investment? - ANSWER Shares of
corporate stock
Which of the following should NOT be considered when evaluating a checking account?
- ANSWER the type of accounts insurance carried by the bank
stopping payment on a check - ANSWER can only be used if the check has not cleared
An arrangement that protects a customer who writes a check for an amount hat
exceeds the checking account balance is called - ANSWER overdraft protection
If a bank provides overdraft protection at a rate of 12% for each $100 (or portion of
$100) borrowed when an overdraft occurs, what amount of interest would a customer
pay for a $188 overdraft?
A) $24.00
B) $22.56
C) $10.56
D) $12.00 - ANSWER B. 22.56
Checking accounts may offer all of the following except - ANSWER account balance
insurance in excess of $250,000
ANSWERS
Money management is a series of decisions made over a short term period regarding
cash inflows and outflows - ANSWER TRUE
Liquitidy refers to your ability to cover any long term cash deficiencies - ANSWER
FALSE
Money management has no relationship to the personal cash flow statement -
ANSWER FALSE
You should attempt to have sufficient amount of funds in liquid assets to draw on when
your cash outflows exceed your cash inflows - ANSWER TRUE
maintaining liquid assets that you can easily access when you need funds allows you to
avoid using credit and paying finance charges - ANSWER TRUE
In general, the more liquid an investment is the higher its return - ANSWER FALSE
Liquidity is necessary because there are times during the year when your cash inflows
are not adequate to cover your cash outflows - ANSWER TRUE
To achieve both liquidity and an adequate return, you should consider investing in
only one money market investment with a fixed interest rate and a long maturity date -
ANSWER FALSE
good cash management requires some liquidity, but excessive liquidity has an
opportunity cost - ANSWER TRUE
Which of the following does money management NOT involve?
A.) series of decisions
B.) a long term time period
C.) Cash inflows
D.) cash outflows - ANSWER B. long term time period
_______ management is a series of decisions made over a short term period regarding
cash inflows and outflows - ANSWER Money
Your ability to cover any short term cash deficiencies is called - ANSWER Liquidity
A disadvantage of using credit as a source of liquidity is the - ANSWER potential cost of
finance charges
, In general, the more liquid an investment is, the _____ the return you will receive. -
ANSWER Lower
Generally, yields are ________ for securities that are exposed to ________ liquidity
risk.
A. higher;more
B. higher;less
C. lower;less
D. both A & C are corned - ANSWER D.
To achieve both liquidity and an adequate return, you should consider investing in -
ANSWER multiple money market investment with varied returns and levels of liquidity
your ability to cover short-term cash deficiencies is a measure of your - ANSWER
liquidity
a series of decisions made over a short period of time regarding cash inflows and
outflows - ANSWER Money management
ability to cover cash deficiencies - ANSWER liquidity
cash outflows are more than inflows - ANSWER cash deficiency
Which of the following is NOT a money market investment? - ANSWER Shares of
corporate stock
Which of the following should NOT be considered when evaluating a checking account?
- ANSWER the type of accounts insurance carried by the bank
stopping payment on a check - ANSWER can only be used if the check has not cleared
An arrangement that protects a customer who writes a check for an amount hat
exceeds the checking account balance is called - ANSWER overdraft protection
If a bank provides overdraft protection at a rate of 12% for each $100 (or portion of
$100) borrowed when an overdraft occurs, what amount of interest would a customer
pay for a $188 overdraft?
A) $24.00
B) $22.56
C) $10.56
D) $12.00 - ANSWER B. 22.56
Checking accounts may offer all of the following except - ANSWER account balance
insurance in excess of $250,000
