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Cash and Its Role in Transactions Quiz

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Questions and Answers

Which of the following is considered as cash?

Bank overdrafts

Bank drafts

Restricted cash

Funds on deposit at the bank (correct)

What is a compensating balance in relation to cash?

A balance used for dividend payments

A balance for check processing services

A minimum cash balance required by lending institutions (correct)

A balance set aside for plant expansion

What may restrict cash besides contractual requirements?

Bank overdrafts

Personal checks

Special funds voluntarily maintained for future plant expansion (correct)

Bank drafts

Which of the following is an example of restricted cash?

Funds set aside for dividend payments Signup and view all the answers

What is the purpose of maintaining a compensating balance?

To support borrowing arrangements Signup and view all the answers

Which of the following is an example of cash according to the text?

Traveler's checks Signup and view all the answers

What is the primary purpose of maintaining a compensating balance in checking or savings accounts?

To support borrowing arrangements with lending institutions Signup and view all the answers

What may lead to cash being restricted besides contractual requirements?

Voluntarily maintaining special funds for future purposes Signup and view all the answers

What is an example of cash equivalent according to the text?

Bank overdrafts Signup and view all the answers

What is the distinguishing factor between free cash and restricted cash as per the text?

The presence of contractual limitations Signup and view all the answers