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CA Intermediate · Financial Management and Strategic Management · Treasury and Cash Management

In treasury management, the practice of a company reducing its borrowing cost by pooling surplus balances of various bank accounts so that debit and credit balances are offset is best described as:

The practice is cash pooling. A company or group combines balances of several bank accounts so that surplus balances offset deficits in other accounts. This reduces borrowing and interest cost and idle cash, unlike factoring or bill discounting, which finance receivables.

  1. ACash poolingCorrect
  2. BFactoring
  3. CDebt securitisation
  4. DBill discounting

Explanation

Cash pooling (or cash concentration) combines balances of several accounts of a group so surpluses offset deficits, cutting interest cost and idle funds. Factoring and bill discounting relate to receivables financing, and securitisation converts assets into tradable securities.

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