Chapter 11: Cash Management Services and Its Importance (JAIIB - Paper 2)
1. Which of the following best describes Cash Management Services (CMS) in banks?
A. Only cash deposit and withdrawal facility
B. Service limited to high-net-worth customers
C. A set of services enabling corporates to manage collections, payments, and liquidity efficiently
D. RBI’s method of currency circulation
CMS refers to services offered by banks to help businesses manage their receivables, payables, liquidity, and optimize cash flow.
2. Development of CMS in recent years is largely driven by:
A. Only government regulations
B. Only physical cheque collection systems
C. Decline of digital banking
D. Growth in technology, digital payments, and automation
CMS evolved with digital banking, RTGS, NEFT, UPI, host-to-host integration, and automated reconciliation tools.
3. A corporate client wants real-time reconciliation of its nationwide collections. Which CMS development caters to this need?
A. Virtual Account Management (VAM)
B. Traditional cash pick-up service
C. Manual ledger reconciliation
D. Post-dated cheque collection
Virtual Account Management assigns unique virtual IDs to customers, allowing corporates to track and reconcile collections in real time.
4. Which of the following is NOT a development in CMS?
A. Electronic collections via RTGS/NEFT/UPI
B. Manual cash handling without any digitization
C. Host-to-Host integration for corporates
D. Automated payables and receivables solutions
Modern CMS is technology-driven, focusing on digitization. Manual cash handling without automation is not considered a development.
5. A company uses CMS solutions where customer payments through UPI, cards, and net banking are all captured in a single dashboard. This is an example of:
A. Physical cash pick-up service
B. Cheque truncation process
C. Omni-channel collections under CMS
D. SWIFT messaging system
Omni-channel CMS solutions consolidate different payment modes into one reporting system for easy reconciliation and cash flow visibility.
6. What is the primary importance of Cash Management System (CMS) for corporates?
A. Ensures efficient liquidity management and timely availability of funds
B. Helps in filing income tax returns
C. Determines the value of equity shares
D. Increases only physical cash transactions
CMS helps corporates optimize liquidity, reduce idle funds, and ensure availability of cash for operational needs.
7. Which of the following reflects the importance of CMS for banks?
A. Increases bank’s dependence on cash counters
B. Reduces digital transactions
C. Avoids customer integration
D. Strengthens customer relationship and increases fee-based income
For banks, CMS builds strong client relationships, improves service quality, and generates non-interest income.
8. A company uses CMS to centralize all its branch collections. Which importance of CMS does this highlight?
A. Helps in marketing strategy
B. Enhances control and visibility of cash flows
C. Improves employee training
D. Reduces interest rates
CMS allows centralized monitoring, giving corporates better control, visibility, and accuracy over cash flow management.
9. CMS helps corporates in reducing the “float period”. What does float reduction signify?
A. More idle funds remain in the system
B. Cash inflows take longer to reach the account
C. Faster realization of receivables and early fund availability
D. Cash outflows are delayed indefinitely
Float reduction means minimizing the time gap between collection and credit, ensuring quicker fund availability.
10. A retail chain uses CMS for managing daily sales proceeds from 500 outlets across India. This importance of CMS relates to:
A. Investment planning
B. Currency depreciation management
C. Tax optimization
D. Efficient collection and consolidation of funds
CMS enables nationwide collection and consolidation of funds, essential for businesses with multiple outlets.
11. Which of the following is a type of collection service under CMS?
A. RTGS outward remittance
B. Lockbox services for cheque collections
C. Sweep-in facility
D. Payroll processing
Lockbox service is a collection service where customer payments are directly sent to a bank-managed P.O. Box, reducing collection float time.
12. In CMS, services like vendor payments, dividend payouts, and salary disbursements fall under which type?
A. Payment services
B. Collection services
C. Liquidity management
D. Support services
Payment services in CMS include bulk disbursements such as salary, vendor payments, interest/dividend payouts, and statutory dues.
13. A corporate uses CMS to automatically transfer surplus balances from current accounts to short-term deposits. This is an example of:
A. Collection service
B. Payment service
C. Support service
D. Liquidity management service
Liquidity management services include sweep-in, sweep-out, and cash pooling facilities that optimize fund utilization.
14. Which of the following is an example of a support service in CMS?
A. Sweep-out facility
B. Dividend payout
C. Management Information System (MIS) reporting
D. Cheque collection
Support services include MIS reporting, reconciliation, data integration, and customer dashboards for better decision-making.
15. In CMS, Host-to-Host (H2H) integration between a corporate’s ERP system and the bank mainly supports:
A. Only cash deposit at branches
B. Seamless payment and collection processing with real-time data exchange
C. Manual posting of entries
D. Delay in reconciliation process
H2H integration automates payment and collection processes by directly linking corporate ERP systems with bank servers.
16. Which of the following is a major challenge in implementing CMS for corporates?
A. Integration of multiple banking systems with corporate ERP
B. Increasing employee headcount
C. Reduction in receivables
D. Simplification of fund flows
One of the biggest issues in CMS is ensuring seamless integration between different banking platforms and corporate ERP systems.
17. Data security and fraud risk in CMS arises mainly due to:
A. Use of RBI guidelines
B. Manual verification of every transaction
C. Increased dependence on digital platforms and electronic transfers
D. Physical collection of cash
Since CMS relies heavily on digital transfers and online integration, it faces risks of hacking, cyber fraud, and unauthorized access.
18. A bank offering CMS faces high operational costs. Which of the following is a key reason?
A. Reduced use of digital platforms
B. Lesser need for automation
C. No investment in customer MIS
D. Need for continuous investment in technology, network security, and integration
Banks must constantly upgrade CMS platforms, enhance cybersecurity, and maintain integration, leading to higher operational costs.
19. Which regulatory issue often creates challenges in cross-border CMS services?
A. GST compliance
B. Foreign exchange regulations and AML/KYC compliance
C. Domestic cheque clearing rules
D. Digital wallet transactions
Cross-border CMS solutions face compliance issues with FEMA, AML/KYC norms, and foreign exchange regulations.
20. One common issue faced by corporates using CMS is "float". In this context, what does float represent?
A. Surplus funds lying in fixed deposits
B. Balance left in petty cash
C. Time lag between initiating a collection/payment and its actual realization
D. Cash retained by employees for daily use
Float is the delay between the transaction and final settlement, which affects liquidity management in CMS.
