Which liquidity management tool allows entities to utilize surplus balances while mitigating debit interest?

The correct choice is based on the functionality of notional pooling as a liquidity management tool. Notional pooling allows entities to consolidate their cash positions across multiple accounts without requiring physical transfers of funds. This means that surplus balances in one account can offset deficits in other accounts, effectively pooling the balances for interest calculation purposes.

By using notional pooling, organizations can mitigate or even eliminate debit interest charges on accounts that may go into overdraft while simultaneously utilizing surplus funds to improve their overall liquidity position. This is particularly beneficial for multinational corporations or organizations with numerous accounts, as it provides a more efficient way to manage cash flow, minimize interest expenses, and optimize the use of available funds.

Zero Balance Accounts are also a liquidity management tool, but they work differently by automatically transferring funds to bring the account balance to zero at the end of each business day. While effective, they don't allow for the same flexible pooling of balances as notional pooling does. Two-way sweep accounts involve the physical transfer of funds between accounts, which can incur costs and may not provide the same level of efficiency as notional pooling. Multiple currency accounts are useful for managing foreign currencies but do not specifically address the goal of mitigating debit interest through the consolidation of cash balances.