Association for Financial Professionals (AFP) Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the AFP Exam with confidence! Tackle exam questions and enhance your skills with detailed hints and explanations. Ace your exam and advance your financial career!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What happens to idle cash in a physical pooling arrangement?

It usually accumulates in the main account
It is automatically transferred to/from the concentration account
It is invested in short-term securities
It is redistributed among subsidiary accounts

The correct answer is: It is automatically transferred to/from the concentration account

In a physical pooling arrangement, idle cash is automatically transferred to and from the concentration account. This method allows organizations to optimize their cash management by centralizing cash resources. When cash accumulates in various subsidiary accounts that are part of the pooling arrangement, it can be efficiently moved to the concentration account, ensuring that surplus funds are available for investment or operational needs. This automatic transfer mechanism allows companies to minimize idle cash and maximize the overall interest income. It facilitates better liquidity management by consolidating cash in one account, allowing for more effective use of funds, and enabling the organization to meet unexpected cash needs without delay. This pooling arrangement streamlines cash management operations and helps businesses maintain a more efficient and responsive treasury function.