Question 1

Financial managers may prefer financial futures markets in the United States to the Montreal Futures Exchange because of:

Accepted Answer

A)  political uncertainty. 
B)  the use of U.S. dollars. 
C)  Chicago is closer to Toronto than Montreal. 
D)  greater liquidity. 
A)  political uncertainty. 
B)  the use of U.S. dollars. 
C)  Chicago is closer to Toronto than Montreal. 
D)  greater liquidity.

Question 2

The upward movement of the exchange rate can increase the total cost of a loan by making the principal repayment require more money than the original amount of the loan.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a characteristic of commercial paper?

Accepted Answer

A)  Issued by large firms. 
B)  One-to-two year maturity. 
C)  Rates are usually above prime rates on business loans. 
D)  Issued by small firms. 
A)  Issued by large firms. 
B)  One-to-two year maturity. 
C)  Rates are usually above prime rates on business loans. 
D)  Issued by small firms.

Question 4

General Rent-All's officers arrange a $50,000 loan. The company is required to maintain a minimum account balance of 10% of the outstanding loan in their chequing account. This is referred to as:

Accepted Answer

A)  an instalment loan. 
B)  a compensating balance. 
C)  a discounted loan. 
D)  a balloon payment. 
A)  an instalment loan. 
B)  a compensating balance. 
C)  a discounted loan. 
D)  a balloon payment.

Question 5

Multinational firms have found that they can lower borrowing costs:

Accepted Answer

A)  by borrowing US dollars. 
B)  by issuing more debt. 
C)  by using more bankers' acceptances. 
D)  by borrowing foreign currencies through foreign subsidiaries at rates lower than the Canadian prime and then converting these foreign loans into dollars. 
A)  by borrowing US dollars. 
B)  by issuing more debt. 
C)  by using more bankers' acceptances. 
D)  by borrowing foreign currencies through foreign subsidiaries at rates lower than the Canadian prime and then converting these foreign loans into dollars.

Question 6

Commercial Paper is generally issued by public companies that are considered to be financial very secure and thus have much lower levels of business risk.

Accepted Answer

A) True 
 B)False

Question 7

Approximately 50% of short-term financing is in the form of accounts payable or trade credit.

Accepted Answer

A) True 
 B)False

Question 8

A compensating balance will be lower in periods of tight money than in periods of credit ease.

Accepted Answer

A) True 
 B)False

Question 9

A term loan is usually characterized by:

Accepted Answer

A)  maturity of ten to fifteen years. 
B)  a zero interest rate. 
C)  monthly or quarterly instalment payments. 
D)  securitization of inventory. 
A)  maturity of ten to fifteen years. 
B)  a zero interest rate. 
C)  monthly or quarterly instalment payments. 
D)  securitization of inventory.

Question 10

Which of the following is not a method for lenders to control pledged inventory?

Accepted Answer

A)  Blanket inventory liens. 
B)  Trust receipts. 
C)  Warehousing. 
D)  Factoring. 
A)  Blanket inventory liens. 
B)  Trust receipts. 
C)  Warehousing. 
D)  Factoring.

Question 11

Mr. Phelps borrows $3,000 for 30 days and pays $80 interest. What is his annual rate of interest?

Accepted Answer

A)  2.67% 
B)  16.24% 
C)  32.44% 
D)  24.54% 
A)  2.67% 
B)  16.24% 
C)  32.44% 
D)  24.54%

Question 12

Even though a firm factors its receivables to a finance company, it is still liable if the account becomes uncollectible.

Accepted Answer

A) True 
 B)False

Question 13

Issuers of commercial paper can be divided into finance companies and industrial or utility firms.

Accepted Answer

A) True 
 B)False

Question 14

The effective annual rate on a loan will always be higher than the stated rate because the effective annual rate takes into account compounding.

Accepted Answer

A) True 
 B)False

Question 15

You are considering buying a new big screen TV from the BIG Electronics Co. BIG has offered to finance your purchase by extending credit to you. The terms of the credit are 12 easy monthly payments of $95. If you choose to finance this purchase, rather than pay the cash price of $850, what would your annual interest on this loan be?

Accepted Answer

A)  20.63% 
B)  34.12% 
C)  57.99% 
D)  74.56% 
A)  20.63% 
B)  34.12% 
C)  57.99% 
D)  74.56%

Question 16

The prime rate:

Accepted Answer

A)  is the annual rate of interest for banks' best customers. 
B)  changes infrequently. 
C)  is usually lower than treasury bill rates. 
D)  is the annual rate of interest for the bank. 
A)  is the annual rate of interest for banks' best customers. 
B)  changes infrequently. 
C)  is usually lower than treasury bill rates. 
D)  is the annual rate of interest for the bank.

Question 17

Commercial paper that is sold without going through a broker or dealer is known as:

Accepted Answer

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

Question 18

Bank loans to business firms:

Accepted Answer

A)  are usually long-term in nature. 
B)  are preferred by the business not to be self-liquidating. 
C)  may require commercial paper to be issued. 
D)  may require compensating balances. 
A)  are usually long-term in nature. 
B)  are preferred by the business not to be self-liquidating. 
C)  may require commercial paper to be issued. 
D)  may require compensating balances.

Question 19

Compensating balances represent unfair hidden costs of borrowing.

Accepted Answer

A) True 
 B)False

Question 20

Commercial paper has an advantage that:

Accepted Answer

A)  it has low probability of default. 
B)  it requires small compensating balances. 
C)  it is secured by an independent third party. 
D)  it requires no compensating balances. 
A)  it has low probability of default. 
B)  it requires small compensating balances. 
C)  it is secured by an independent third party. 
D)  it requires no compensating balances.

Financial managers may prefer financial futures markets in the United States to the Montreal Futures Exchange because of:

The upward movement of the exchange rate can increase the total cost of a loan by making the principal repayment require more money than the original amount of the loan.

Which of the following is a characteristic of commercial paper?

General Rent-All's officers arrange a $50,000 loan. The company is required to maintain a minimum account balance of 10% of the outstanding loan in their chequing account. This is referred to as:

Multinational firms have found that they can lower borrowing costs:

Commercial Paper is generally issued by public companies that are considered to be financial very secure and thus have much lower levels of business risk.

Approximately 50% of short-term financing is in the form of accounts payable or trade credit.

A compensating balance will be lower in periods of tight money than in periods of credit ease.

A term loan is usually characterized by:

Which of the following is not a method for lenders to control pledged inventory?

Mr. Phelps borrows $3,000 for 30 days and pays $80 interest. What is his annual rate of interest?

Even though a firm factors its receivables to a finance company, it is still liable if the account becomes uncollectible.

Issuers of commercial paper can be divided into finance companies and industrial or utility firms.

The effective annual rate on a loan will always be higher than the stated rate because the effective annual rate takes into account compounding.

The prime rate:

Commercial paper that is sold without going through a broker or dealer is known as:

Bank loans to business firms:

Compensating balances represent unfair hidden costs of borrowing.

Commercial paper has an advantage that:

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

Financial managers may prefer financial futures markets in the United States to the Montreal Futures Exchange because of:

The upward movement of the exchange rate can increase the total cost of a loan by making the principal repayment require more money than the original amount of the loan.

Which of the following is a characteristic of commercial paper?

General Rent-All's officers arrange a $50,000 loan. The company is required to maintain a minimum account balance of 10% of the outstanding loan in their chequing account. This is referred to as:

Multinational firms have found that they can lower borrowing costs:

Commercial Paper is generally issued by public companies that are considered to be financial very secure and thus have much lower levels of business risk.

Approximately 50% of short-term financing is in the form of accounts payable or trade credit.

A compensating balance will be lower in periods of tight money than in periods of credit ease.

A term loan is usually characterized by:

Which of the following is not a method for lenders to control pledged inventory?

Mr. Phelps borrows $3,000 for 30 days and pays $80 interest. What is his annual rate of interest?

Even though a firm factors its receivables to a finance company, it is still liable if the account becomes uncollectible.

Issuers of commercial paper can be divided into finance companies and industrial or utility firms.

The effective annual rate on a loan will always be higher than the stated rate because the effective annual rate takes into account compounding.

The prime rate:

Commercial paper that is sold without going through a broker or dealer is known as:

Bank loans to business firms:

Compensating balances represent unfair hidden costs of borrowing.

Commercial paper has an advantage that:

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