Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The prime rate

Accepted Answer

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

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

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 5

What are the risks in the commercial paper market?

Accepted Answer

• The possibility of default
• The poten

Question 6

Large firms tend to be

Accepted Answer

A)  net users of trade credit. 
B)  net suppliers of trade credit. 
C)  firms with high levels of profitability. 
D)  firms with low levels of inventory turnover and accounts receivable turnover. 
A)  net users of trade credit. 
B)  net suppliers of trade credit. 
C)  firms with high levels of profitability. 
D)  firms with low levels of inventory turnover and accounts receivable turnover.

Question 7

In determining the cost of bank financing, which is the important factor?

Accepted Answer

A)  prime rate 
B)  nominal rate 
C)  annual rate 
D)  discount rate 
A)  prime rate 
B)  nominal rate 
C)  annual rate 
D)  discount rate

Question 8

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)  none of the answers is correct 
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)  none of the answers is correct

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The cost of forgoing the discount on trade credit of 4/10, net 90 is equal to

Accepted Answer

A)  18.25%. 
B)  19.01%. 
C)  20.52%. 
D)  12.13% 
A)  18.25%. 
B)  19.01%. 
C)  20.52%. 
D)  12.13%

Question 12

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 13

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 14

Business Book Publishing needs to borrow $700,000 in order to finance its new inventory. Two banks in town offered different loan terms: Marine Bank offered a 10% loan with a 15% compensatory balance to be paid back in quarterly payments. McLean National Bank offered Business Book Publishing a 12% loan to be paid back semi-annually. Which loan terms should Business Book Publishing take?

Accepted Answer

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Question 15

Even during slack loan periods, banks will never loan out money at an interest rate lower than the prime rate because the prime rate is their best rate.

Accepted Answer

A) True 
 B)False

Question 16

Financial managers may prefer the Chicago Board of Trade's financial futures market 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 17

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 18

It is easier for small firms to obtain financing through bank loans than through the commercial paper market.

Accepted Answer

A) True 
 B)False

Question 19

Larger firms tend to be net users of trade credit.

Accepted Answer

A) True 
 B)False

Question 20

Analog Computers needs to borrow $800,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $800,000 spendable cash?

Accepted Answer

A)  $ 920,000 
B)  $1,058,264 
C)  $ 941,177 
D)  none of the other answers are correct 
A)  $ 920,000 
B)  $1,058,264 
C)  $ 941,177 
D)  none of the other answers are correct

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

The prime rate

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

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?

What are the risks in the commercial paper market?

Large firms tend to be

In determining the cost of bank financing, which is the important factor?

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

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

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

The cost of forgoing the discount on trade credit of 4/10, net 90 is equal to

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

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

Even during slack loan periods, banks will never loan out money at an interest rate lower than the prime rate because the prime rate is their best rate.

Financial managers may prefer the Chicago Board of Trade's financial futures market to the Montreal Futures Exchange because of

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

It is easier for small firms to obtain financing through bank loans than through the commercial paper market.

Larger firms tend to be net users of trade credit.

Analog Computers needs to borrow $800,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $800,000 spendable cash?

The Goals and Activities 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 Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

External Growth Through Mergers

International Financial Management

Filters

Exam 8: Sources of Short-Term Financing

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

The prime rate

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

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?

What are the risks in the commercial paper market?

Large firms tend to be

In determining the cost of bank financing, which is the important factor?

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

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

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

The cost of forgoing the discount on trade credit of 4/10, net 90 is equal to

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

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

Even during slack loan periods, banks will never loan out money at an interest rate lower than the prime rate because the prime rate is their best rate.

Financial managers may prefer the Chicago Board of Trade's financial futures market to the Montreal Futures Exchange because of

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

It is easier for small firms to obtain financing through bank loans than through the commercial paper market.

Larger firms tend to be net users of trade credit.

Analog Computers needs to borrow $800,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $800,000 spendable cash?

The Goals and Activities 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 Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

External Growth Through Mergers

International Financial Management

Filters