CFA Level I · CFA Level I Exam · Working Capital and Liquidity
Which of the following is most likely a feature of effective liquidity management at a corporate issuer?
Effective liquidity management most likely involves forecasting cash flows and matching short-term funding needs with available sources. This keeps enough liquidity to meet obligations while limiting cost. Holding idle non-interest-bearing cash or depending on secondary sources is inefficient or risky.
- AHolding all excess cash in non-interest-bearing accounts to maximize availability
- BForecasting cash flows and matching short-term funding needs with available sourcesCorrect
- CRelying mainly on secondary sources to avoid holding idle balances
Explanation
Effective liquidity management involves forecasting cash inflows and outflows, and arranging sources such as investments and credit lines to meet needs at low cost. Idle non-interest-bearing balances sacrifice return, and relying on secondary sources is costly and risky.
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