Question 1

LIBOR is

Accepted Answer

A)  a resource used in production. 
B)  an interest rate paid on Eurodollar deposits 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 Eurodollar deposits 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 2

Firms can almost always increase the amount of time they take to pay for purchases without incurring problems.

Accepted Answer

A) True 
 B)False

Question 3

Trade credit is usually extended for periods of one year or more.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Firms using commercial paper are generally required to maintain bank lines of credit equal to the amount of paper outstanding.

Accepted Answer

A) True 
 B)False

Question 6

Commercial paper has the following advantage.

Accepted Answer

A)  it may be issued below the prime rate 
B)  it requires no compensating balances 
C)  it is secured by corporate assets to protect the buyer 
D)  two of the answers are correct 
A)  it may be issued below the prime rate 
B)  it requires no compensating balances 
C)  it is secured by corporate assets to protect the buyer 
D)  two of the answers are correct

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

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 11

Small businesses frequently find commercial paper a useful means of obtaining funds when it is not possible to raise funds by other means.

Accepted Answer

A) True 
 B)False

Question 12

Commercial paper represents secured short-term borrowing by large companies.

Accepted Answer

A) True 
 B)False

Question 13

A term loan is usually characterized by

Accepted Answer

A)  maturity of one to seven years. 
B)  a variable interest rate. 
C)  monthly or quarterly instalment payments. 
D)  all of the other answers are correct 
A)  maturity of one to seven years. 
B)  a variable interest rate. 
C)  monthly or quarterly instalment payments. 
D)  all of the other answers are correct

Question 14

Why is commercial paper an attractive alternative to short-term bank financing?

Accepted Answer

• Generally it is cheaper (funds are rai

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The London Interbank Offered Rate (LIBOR)

Accepted Answer

A)  does not compete with the prime rate domestically for international firms. 
B)  often is lower than the domestic prime rate. 
C)  is the loan rate offered by London banks to its best customers. 
D)  is a stable international rate. 
A)  does not compete with the prime rate domestically for international firms. 
B)  often is lower than the domestic prime rate. 
C)  is the loan rate offered by London banks to its best customers. 
D)  is a stable international rate.

Question 18

Hedging refers to

Accepted Answer

A)  avoiding high-risk investment opportunities. 
B)  a transaction that reduces risk exposure. 
C)  the same thing as asset diversification. 
D)  avoiding the financial futures market. 
A)  avoiding high-risk investment opportunities. 
B)  a transaction that reduces risk exposure. 
C)  the same thing as asset diversification. 
D)  avoiding the financial futures market.

Question 19

In financing accounts receivable, pledging uses receivables _______ while factoring uses receivables _________.

Accepted Answer

A)  as collateral, to purchase 
B)  as collateral, to sell 
C)  to sell, as collateral 
D)  to sell, to purchase 
A)  as collateral, to purchase 
B)  as collateral, to sell 
C)  to sell, as collateral 
D)  to sell, to purchase

Question 20

Brand Advertising is offered a 3/10 net 40 trade discount by its supplier. In the past Brand has been able to get away with paying for supplies on credit in 60 days. Since it doesn't have money on hand to take advantage of the discount, it tries to negotiate a loan with Second Canadian Bank. The amount of $375,000 with a 15% compensating balance and a $5,500 interest charge has been negotiated for the month of May. Brand already maintains a $16,250 balance at the bank. Compute the annual rate of interest on the loan, and the cost of not taking the discount. Which one should Brand take?

Accepted Answer

Cost of not taking discount @#IMG-DLM& A

LIBOR is

Firms can almost always increase the amount of time they take to pay for purchases without incurring problems.

Trade credit is usually extended for periods of one year or more.

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

Firms using commercial paper are generally required to maintain bank lines of credit equal to the amount of paper outstanding.

Commercial paper has the following advantage.

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

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

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

Bank loans to business firms

Small businesses frequently find commercial paper a useful means of obtaining funds when it is not possible to raise funds by other means.

Commercial paper represents secured short-term borrowing by large companies.

A term loan is usually characterized by

Why is commercial paper an attractive alternative to short-term bank financing?

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

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

The London Interbank Offered Rate (LIBOR)

Hedging refers to

In financing accounts receivable, pledging uses receivables _ while factoring uses receivables ___.

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

LIBOR is

Firms can almost always increase the amount of time they take to pay for purchases without incurring problems.

Trade credit is usually extended for periods of one year or more.

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

Firms using commercial paper are generally required to maintain bank lines of credit equal to the amount of paper outstanding.

Commercial paper has the following advantage.

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

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

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

Bank loans to business firms

Small businesses frequently find commercial paper a useful means of obtaining funds when it is not possible to raise funds by other means.

Commercial paper represents secured short-term borrowing by large companies.

A term loan is usually characterized by

Why is commercial paper an attractive alternative to short-term bank financing?

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

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

The London Interbank Offered Rate (LIBOR)

Hedging refers to

In financing accounts receivable, pledging uses receivables _______ while factoring uses receivables _________.

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

In financing accounts receivable, pledging uses receivables _ while factoring uses receivables ___.