Question 1

A trade discount is a percentage reduction from the invoice price given for purchasing certain minimum quantities.

Accepted Answer

A) True 
 B)False  False

Question 2

The banks have been significant issuers of asset-backed securities.

Accepted Answer

A) True 
 B)False  True

Question 3

Compensating balances:

Accepted Answer

A)  are used by banks as a substitute for charging service fees. 
B)  are created by having a concentration account. 
C)  generate returns to customers from interest bearing accounts. 
D)  are used to reward new accounts. 
A)  are used by banks as a substitute for charging service fees. 
B)  are created by having a concentration account. 
C)  generate returns to customers from interest bearing accounts. 
D)  are used to reward new accounts. A

Question 4

The sale of securities backed by the receivables of large credit worthy firms is a large source of financing.

Accepted Answer

A) True 
 B)False

Question 5

On 2/10, net 30 trade terms, if the discount is not taken, the buyer is said to receive 20 days of free credit.

Accepted Answer

A) True 
 B)False

Question 6

Although the LIBOR has remained competitive and comparable to the Canadian prime rate, it has remained slightly higher than the prime rate.

Accepted Answer

A) True 
 B)False

Question 7

In times of tight credit in Canada, Eurodollar loans become difficult to obtain.

Accepted Answer

A) True 
 B)False

Question 8

Net credit position refers to:

Accepted Answer

A)  the difference between receivables and payables. 
B)  the difference between receipts and disbursements. 
C)  the average collection period. 
D)  the average payment period. 
A)  the difference between receivables and payables. 
B)  the difference between receipts and disbursements. 
C)  the average collection period. 
D)  the average payment period.

Question 9

Commercial paper that is sold without the use of an actual paper certificate is known as:

Accepted Answer

A)  finance paper. 
B)  dealer paper. 
C)  book-entry paper. 
D)  term paper. 
A)  finance paper. 
B)  dealer paper. 
C)  book-entry paper. 
D)  term paper.

Question 10

The cost of forgoing the discount on trade credit of 1/10, net 30 is equal to:

Accepted Answer

A)  22.35%. 
B)  18.43%. 
C)  20.52%. 
D)  12.00% 
A)  22.35%. 
B)  18.43%. 
C)  20.52%. 
D)  12.00%

Question 11

All commercial paper involves the physical transfer of actual paper certificates.

Accepted Answer

A) True 
 B)False

Question 12

When calculating a loan with a 20% compensating balance a firm would borrow ____ in order to have available funds of $200,000.

Accepted Answer

A)  $160,000 
B)  $200,000 
C)  $250,000 
D)  $260,000 
A)  $160,000 
B)  $200,000 
C)  $250,000 
D)  $260,000

Question 13

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Accepted Answer

A) True 
 B)False

Question 14

Bank loans to business firms:

Accepted Answer

A)  are usually long-term in nature. 
B)  are preferred by the banker to be self-liquidating. 
C)  require compensating balances. 
D)  are always at a fixed rate. 
A)  are usually long-term in nature. 
B)  are preferred by the banker to be self-liquidating. 
C)  require compensating balances. 
D)  are always at a fixed rate.

Question 15

The bank rate:

Accepted Answer

A)  is the rate that the Bank of Canada charges Chartered banks. 
B)  is very stable over time. 
C)  is affected by economic and political factors. 
D)  is available to all bank customers. 
A)  is the rate that the Bank of Canada charges Chartered banks. 
B)  is very stable over time. 
C)  is affected by economic and political factors. 
D)  is available to all bank customers.

Question 16

The cost of not taking a 2/10, net 30 cash discount is usually less than the prime rate.

Accepted Answer

A) True 
 B)False

Question 17

Firms exposed to the risk of interest rate changes may reduce that risk by:

Accepted Answer

A)  obtaining a Eurodollar loan. 
B)  hedging in the financial futures market. 
C)  hedging in the commodities market. 
D)  pledging or factoring accounts receivable. 
A)  obtaining a Eurodollar loan. 
B)  hedging in the financial futures market. 
C)  hedging in the commodities market. 
D)  pledging or factoring accounts receivable.

Question 18

The prime rate has been tied to market interest rates to better relate the interest rate to banks' cost of funds.

Accepted Answer

A) True 
 B)False

Question 19

Compensating balances have been important for banks because their existence allows them to make loans at lower quoted rates.

Accepted Answer

A) True 
 B)False

Question 20

The bank rate is determined by:

Accepted Answer

A)  the chartered banks. 
B)  the yield on 91-day Treasury bills. 
C)  the prime rate. 
D)  the Bank of Canada overnight rate. 
A)  the chartered banks. 
B)  the yield on 91-day Treasury bills. 
C)  the prime rate. 
D)  the Bank of Canada overnight rate.

Exam 8: Sources of Short-Term Financing

A trade discount is a percentage reduction from the invoice price given for purchasing certain minimum quantities.

The banks have been significant issuers of asset-backed securities.

Compensating balances:

The sale of securities backed by the receivables of large credit worthy firms is a large source of financing.

On 2/10, net 30 trade terms, if the discount is not taken, the buyer is said to receive 20 days of free credit.

Although the LIBOR has remained competitive and comparable to the Canadian prime rate, it has remained slightly higher than the prime rate.

In times of tight credit in Canada, Eurodollar loans become difficult to obtain.

Net credit position refers to:

Commercial paper that is sold without the use of an actual paper certificate is known as:

The cost of forgoing the discount on trade credit of 1/10, net 30 is equal to:

All commercial paper involves the physical transfer of actual paper certificates.

When calculating a loan with a 20% compensating balance a firm would borrow ____ in order to have available funds of $200,000.

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Bank loans to business firms:

The bank rate:

The cost of not taking a 2/10, net 30 cash discount is usually less than the prime rate.

Firms exposed to the risk of interest rate changes may reduce that risk by:

The prime rate has been tied to market interest rates to better relate the interest rate to banks' cost of funds.

Compensating balances have been important for banks because their existence allows them to make loans at lower quoted rates.

The bank rate is determined by:

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Underwriting

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Derivative Securities

External Growth Through Mergers

International Financial Management

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