Question 1

Which of the following is not a characteristic of commercial paper?

Accepted Answer

A)  Issued by large prestigious firms. 
B)  One-to-two year maturity. 
C)  Rates are usually below prime rates on business loans. 
D)  Usually in denominations of $100,000 or more. 
A)  Issued by large prestigious firms. 
B)  One-to-two year maturity. 
C)  Rates are usually below prime rates on business loans. 
D)  Usually in denominations of $100,000 or more.

Question 2

It is difficult to acquire a loan in Canadian dollars outside Canada.

Accepted Answer

A) True 
 B)False

Question 3

Trade credit may be used to finance a major part of the firm's working capital when:

Accepted Answer

A)  the firm extends less liberal credit terms than the supplier. 
B)  the firm extends more liberal credit terms than the supplier. 
C)  the firm and the supplier both extend the same credit terms. 
D)  neither the firm nor the supplier extends credit. 
A)  the firm extends less liberal credit terms than the supplier. 
B)  the firm extends more liberal credit terms than the supplier. 
C)  the firm and the supplier both extend the same credit terms. 
D)  neither the firm nor the supplier extends credit.

Question 4

Larger firms tend to be net users of trade credit.

Accepted Answer

A) True 
 B)False

Question 5

Slipshod Machine Tool Co. owes $40,000 to one of its suppliers. The supplier has offered a trade discount of 2/10 net 30. Slipshod can borrow the funds from either of two banks. First City Bank will loan the funds for 20 days at a cost of $400. Upstart Bank offers a discounted loan for 20 days at a cost of $320.
A) What is the cost of failing to take the discount?
B) What is the annual interest rate on each of the loans?
C) Which alternative should Slipshod follow?

Accepted Answer

A) @#IMG-DLM& B) First City: @#IMG-DLM&

Question 6

Stretching the payment period refers to the practice of trying to take a trade discount after the discount period.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following best describes the benefits to the borrower of selling asset backed securities?

Accepted Answer

A)  Due to the portfolio effect, the borrower can package up low quality accounts receivable and sell them for a premium price. 
B)  The borrower trades current cash flows for future cash flows. 
C)  The asset-backed security may carry a better credit rating. 
D)  The borrower has collateral tied to the asset backed security. 
A)  Due to the portfolio effect, the borrower can package up low quality accounts receivable and sell them for a premium price. 
B)  The borrower trades current cash flows for future cash flows. 
C)  The asset-backed security may carry a better credit rating. 
D)  The borrower has collateral tied to the asset backed security.

Question 8

A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of its customers?

Accepted Answer

A)  Decreased receivables and increased bank loans. 
B)  Increased receivables and increased bank loans. 
C)  Increased payables and decreased bank loans. 
D)  Increased payables and increased bank loans. 
A)  Decreased receivables and increased bank loans. 
B)  Increased receivables and increased bank loans. 
C)  Increased payables and decreased bank loans. 
D)  Increased payables and increased bank loans.

Question 9

Asset-backed securities often have superior credit ratings because of coverage from deposit insurance.

Accepted Answer

A) True 
 B)False

Question 10

Canadian Tire Financial receives a better credit rating than Canadian Tire Canada because:

Accepted Answer

A)  credit card receivables have a low default rate. 
B)  the interest rate on receivables is better than a Sears credit card. 
C)  a trust has the backing of the government through financial legislation. 
D)  securitization automatically qualifies for a better rating. 
A)  credit card receivables have a low default rate. 
B)  the interest rate on receivables is better than a Sears credit card. 
C)  a trust has the backing of the government through financial legislation. 
D)  securitization automatically qualifies for a better rating.

Question 11

Accounts payable is a spontaneous source of funds that grows as the business expands.

Accepted Answer

A) True 
 B)False

Question 12

The prime rate:

Accepted Answer

A)  is the rate that banks are charged by the Bank of Canada. 
B)  was over 30% in the early 1980s. 
C)  is fixed over a long period of time. 
D)  is affected by economic and political factors. 
A)  is the rate that banks are charged by the Bank of Canada. 
B)  was over 30% in the early 1980s. 
C)  is fixed over a long period of time. 
D)  is affected by economic and political factors.

Question 13

LIBOR is:

Accepted Answer

A)  a resource used in production. 
B)  an interest rate paid on deposits of US dollars in the London market. 
C)  an interest rate paid by European firms when they borrow Eurodollar deposits from Canadian banks. 
D)  the interest rate paid by the British government on its long-term bonds. 
A)  a resource used in production. 
B)  an interest rate paid on deposits of US dollars in the London market. 
C)  an interest rate paid by European firms when they borrow Eurodollar deposits from Canadian banks. 
D)  the interest rate paid by the British government on its long-term bonds.

Question 14

The cost of forgoing the discount on trade credit of 4/10, net 25 is equal to:

Accepted Answer

A)  101.32%. 
B)  87.33%. 
C)  28.8%. 
D)  12.13%. 
A)  101.32%. 
B)  87.33%. 
C)  28.8%. 
D)  12.13%.

Question 15

Eurodollar loans are similar to Canadian bank loans in that they are usually short-term in nature.

Accepted Answer

A) True 
 B)False

Question 16

Mrs. Robinson borrows $5,000 for 90 days and pays $80 interest. What is her annual rate of interest?

Accepted Answer

A)  1.6% 
B)  6.49% 
C)  12.98% 
D)  6.40% 
A)  1.6% 
B)  6.49% 
C)  12.98% 
D)  6.40%

Question 17

The sale of asset-backed securities enables the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

Accepted Answer

A) True 
 B)False

Question 18

The largest source of short-term funds for most companies is suppliers (trade credit).

Accepted Answer

A) True 
 B)False

Question 19

If Analog computers can borrow at 9.5% for 3 years, what is the annual rate of interest on an $800,000 loan where a 15% compensating balance is required?

Accepted Answer

A)  11.18%. 
B)  17.27%. 
C)  9.50%. 
D)  3.16%. 
A)  11.18%. 
B)  17.27%. 
C)  9.50%. 
D)  3.16%.

Question 20

Laura's Book Shoppe is going to borrow $50,000 for 90 days at an annual rate of 9%. The amount of interest owing in 90 days will be:

Accepted Answer

A)  $4,500.00 
B)  $1,109.59 
C)  $1,225.00 
D)  $1,009.59 
A)  $4,500.00 
B)  $1,109.59 
C)  $1,225.00 
D)  $1,009.59

Which of the following is not a characteristic of commercial paper?

It is difficult to acquire a loan in Canadian dollars outside Canada.

Trade credit may be used to finance a major part of the firm's working capital when:

Larger firms tend to be net users of trade credit.

Stretching the payment period refers to the practice of trying to take a trade discount after the discount period.

Which of the following best describes the benefits to the borrower of selling asset backed securities?

A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of its customers?

Asset-backed securities often have superior credit ratings because of coverage from deposit insurance.

Canadian Tire Financial receives a better credit rating than Canadian Tire Canada because:

Accounts payable is a spontaneous source of funds that grows as the business expands.

The prime rate:

LIBOR is:

The cost of forgoing the discount on trade credit of 4/10, net 25 is equal to:

Eurodollar loans are similar to Canadian bank loans in that they are usually short-term in nature.

Mrs. Robinson borrows $5,000 for 90 days and pays $80 interest. What is her annual rate of interest?

The sale of asset-backed securities enables the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

The largest source of short-term funds for most companies is suppliers (trade credit).

If Analog computers can borrow at 9.5% for 3 years, what is the annual rate of interest on an $800,000 loan where a 15% compensating balance is required?

Laura's Book Shoppe is going to borrow $50,000 for 90 days at an annual rate of 9%. The amount of interest owing in 90 days will be:

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

Filters

Exam 8: Sources of Short-Term Financing

Which of the following is not a characteristic of commercial paper?

It is difficult to acquire a loan in Canadian dollars outside Canada.

Trade credit may be used to finance a major part of the firm's working capital when:

Larger firms tend to be net users of trade credit.

Stretching the payment period refers to the practice of trying to take a trade discount after the discount period.

Which of the following best describes the benefits to the borrower of selling asset backed securities?

A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of its customers?

Asset-backed securities often have superior credit ratings because of coverage from deposit insurance.

Canadian Tire Financial receives a better credit rating than Canadian Tire Canada because:

Accounts payable is a spontaneous source of funds that grows as the business expands.

The prime rate:

LIBOR is:

The cost of forgoing the discount on trade credit of 4/10, net 25 is equal to:

Eurodollar loans are similar to Canadian bank loans in that they are usually short-term in nature.

Mrs. Robinson borrows $5,000 for 90 days and pays $80 interest. What is her annual rate of interest?

The sale of asset-backed securities enables the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

The largest source of short-term funds for most companies is suppliers (trade credit).

If Analog computers can borrow at 9.5% for 3 years, what is the annual rate of interest on an $800,000 loan where a 15% compensating balance is required?

Laura's Book Shoppe is going to borrow $50,000 for 90 days at an annual rate of 9%. The amount of interest owing in 90 days will be:

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

Filters