Sample interview questions: How do you assess and manage the company’s exposure to liquidity risks in treasury operations?
Sample answer:
Assessing Liquidity Risks:
- Cash Flow Forecasting: Regularly monitor and project future cash flows to anticipate potential shortfalls or surpluses.
- Liquidity Ratios: Calculate liquidity ratios such as current ratio, quick ratio, and cash conversion cycle to assess the company’s short-term cash resources relative to its current liabilities.
- Stress Testing: Simulate different scenarios to evaluate how liquidity would be impacted by adverse events, such as economic downturns or unexpected expenses.
Managing Liquidity Risks:
- Cash Management Strategies: Optimize cash inflows and outflows through various techniques such as accounts receivable financing, supply chain financing, and zero-based budgeting.
- Liquidity Reserves: Establish adequate cash reserves or credit lines to cover unexpected cash outflows and maintain financial flexibility.
- Diversification of Funding Sources: Reduce reliance on any single source of funding by accessing diverse funding options, such as debt financing, equity issuance, or asset-based lending.
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