Question 1

The prime rate

Accepted Answer

A)  is the rate that banks charge their most creditworthy customers. 
B)  was over 20% in the early 1980s. 
C)  is affected by economic and political factors. 
D)  all of the other answers are correct 
A)  is the rate that banks charge their most creditworthy customers. 
B)  was over 20% in the early 1980s. 
C)  is affected by economic and political factors. 
D)  all of the other answers are correct

Question 2

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)  $4500.00 
B)  $1109.59 
C)  $1125.00 
D)  Can't calculate with the information given. 
A)  $4500.00 
B)  $1109.59 
C)  $1125.00 
D)  Can't calculate with the information given.

Question 3

The 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 4

Mr. Jones borrows $3,000 for 90 days and pays $35 interest. What is his annual rate of interest?

Accepted Answer

A)  1.2% 
B)  4.7% 
C)  11.7% 
D)  none of the other answers are correct 
A)  1.2% 
B)  4.7% 
C)  11.7% 
D)  none of the other answers are correct

Question 5

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 6

A cash discount calls for a reduction in price if payment cannot be made within a specified time period.

Accepted Answer

A) True 
 B)False

Question 7

After treasury bills the largest outstanding short-term security is

Accepted Answer

A)  commercial paper. 
B)  bankers' acceptances. 
C)  bearer deposit notes. 
D)  certificates of deposit. 
A)  commercial paper. 
B)  bankers' acceptances. 
C)  bearer deposit notes. 
D)  certificates of deposit.

Question 8

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

Accepted Answer

A)  issued by large firms 
B)  one-to-two year maturity 
C)  rates are usually below prime rates on business loans 
D)  all the answers are commercial paper characteristics 
A)  issued by large firms 
B)  one-to-two year maturity 
C)  rates are usually below prime rates on business loans 
D)  all the answers are commercial paper characteristics

Question 9

The London Interbank offered rate is used to set a base lending rate for some corporate loans originating in the Euromarkets.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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.

Question 12

What is generally the largest source of short-term credit for small firms?

Accepted Answer

A)  bank loans 
B)  commercial paper 
C)  installment loans 
D)  trade credit 
A)  bank loans 
B)  commercial paper 
C)  installment loans 
D)  trade credit

Question 13

Commercial paper is an unsecured short-term IOU from a large financially secure company.

Accepted Answer

A) True 
 B)False

Question 14

Compensating balances represent unfair hidden costs of borrowing.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

Accounts receivable may be used as a source of financing by

Accepted Answer

A)  pledging the receivables as loan collateral. 
B)  factoring the receivables to a finance company. 
C)  selling securities backed by the receivables. 
D)  all of the other answers are correct 
A)  pledging the receivables as loan collateral. 
B)  factoring the receivables to a finance company. 
C)  selling securities backed by the receivables. 
D)  all of the other answers are correct

Question 18

The extent to which inventory financing may be used depends on

Accepted Answer

A)  marketability of pledged goods. 
B)  price stability of goods. 
C)  how perishable the goods are. 
D)  all of the other answers are correct 
A)  marketability of pledged goods. 
B)  price stability of goods. 
C)  how perishable the goods are. 
D)  all of the other answers are correct

Question 19

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

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 20

Approximately 40% of short-term financing is in the form of accounts payable or trade credit.

Accepted Answer

A) True 
 B)False

Exam 8: Sources of Short-Term Financing

The prime rate

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 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.

Mr. Jones borrows $3,000 for 90 days and pays $35 interest. What is his annual rate of interest?

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

A cash discount calls for a reduction in price if payment cannot be made within a specified time period.

After treasury bills the largest outstanding short-term security is

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

The London Interbank offered rate is used to set a base lending rate for some corporate loans originating in the Euromarkets.

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

Compensating balances

What is generally the largest source of short-term credit for small firms?

Commercial paper is an unsecured short-term IOU from a large financially secure company.

Compensating balances represent unfair hidden costs of borrowing.

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

Which of the following is a characteristic of commercial paper?

Accounts receivable may be used as a source of financing by

The extent to which inventory financing may be used depends on

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

Approximately 40% of short-term financing is in the form of accounts payable or trade credit.

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

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