- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 4. Working Capital and Liquidity
- Subject 3. Managing Working Capital and Liquidity
CFA Practice Question
Which of the following would move a firm toward a flexible short-term financial policy?
II. Decreasing the level of investment in inventory
III. Increasing the investment in marketable securities
I. Increasing the credit restrictions for accounts receivable
II. Decreasing the level of investment in inventory
III. Increasing the investment in marketable securities
Correct Answer: III only
I and II would make the firm's short-term financial policy more restrictive.
User Contributed Comments 5
| User | Comment |
|---|---|
| abrown3474 | Not sure I get this one.... |
| schweitzdm | I didn't on my first try either. |
| schweitzdm | Upon reflection it seems that the by investing in more marketable securities there is more flexibility since less dependence on inventory and sales, but I might be wrong. |
| Kevdharr | I was thinking it was II because, if you decrease the level of investment in inventory, you are freeing up more cash which you can then use for emergencies or other initiatives. I didn't think III was right because even short term money market securities aren't quite as liquid as cash. So if you needed to withdraw that cash, you might not be able to get it in time--meaning there is less flexibility. |
| gclafort | @Kevdharr, thought the same thing! |