Question 1

Bank loans to business firms

Accepted Answer

A)  are usually short-term in nature. 
B)  are preferred by the banker to be self-liquidating. 
C)  may require compensating balances. 
D)  all of the other answers are correct 
A)  are usually short-term in nature. 
B)  are preferred by the banker to be self-liquidating. 
C)  may require compensating balances. 
D)  all of the other answers are correct

Question 2

Sears Canada Receivables Trust receives a better credit rating than Sears 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 3

A firm has invested in corporate bonds; it may engage in a financial futures contract in order to protect itself from

Accepted Answer

A)  declining interest rates. 
B)  rising interest rates. 
C)  inflation. 
D)  changes in hedging activities. 
A)  declining interest rates. 
B)  rising interest rates. 
C)  inflation. 
D)  changes in hedging activities.

Question 4

In order to finance a shipment of badminton sets, Rujisawa Import-Export is seeking a $500,000 one-year bank loan. The Marine Bank requires that Rujisawa maintain a 20% compensating balance and requires four quarterly payments. The Prairie Bank requires only a 10% compensating balance, but requires 12 monthly payments. In addition, the Prairie Bank discounts the loan. Both banks state that their interest rate is 9%.
A) Which bank has the lowest annual interest rate? (NOTE: deduct the compensating balances from the principal in determining the annual rate.)
B) If Prairie Bank eliminated its compensating-balance requirement, would your answer change?

Accepted Answer

A) MARINE BANK: @#IMG-DLM& PRA

Question 5

The Magic Pumpkin Limousine Company wants to purchase a car telephone system for one of its automobiles. The telephone vendor has offered to finance the $1,500 purchase over one year in 12 instalments, with a total of $140 in interest to be paid on the loan. Magic Pumpkin's bank has offered to finance the purchase with an instalment loan, where $155 in interest will be repaid and payments on the loan must be made quarterly. What are the annual interest rates on these loans?

Accepted Answer

The answer of The Magic Pumpkin Limousine Company wants to...

Question 6

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 7

In times of tight credit in Canada, Eurodollar loans become difficult to obtain.

Accepted Answer

A) True 
 B)False

Question 8

The annual effective rate of interest on a loan is a measure that includes the compounding effects on the loan.

Accepted Answer

A) True 
 B)False

Question 9

Commercial paper that is sold without the use of an actual paper certificate is known as

Accepted Answer

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

Question 10

The factoring of accounts receivable consists of

Accepted Answer

A)  selling accounts receivable at a profit. 
B)  pledging accounts receivable as collateral for a loan. 
C)  selling accounts receivable to raise working capital. 
D)  buying accounts receivable from a factor. 
A)  selling accounts receivable at a profit. 
B)  pledging accounts receivable as collateral for a loan. 
C)  selling accounts receivable to raise working capital. 
D)  buying accounts receivable from a factor.

Question 11

Financial institution deregulation has eased competition between banks, trust companies, and foreign financial institutions.

Accepted Answer

A) True 
 B)False

Question 12

The London Interbank Offered Rate (LIBOR)

Accepted Answer

A)  competes 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)  two of the answers are correct. 
A)  competes 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)  two of the answers are correct.

Question 13

The bank rate is determined by

Accepted Answer

A)  the chartered banks. 
B)  the yield on 91-day Treasury bills. 
C)  the prime rate. 
D)  the overnight rate. 
A)  the chartered banks. 
B)  the yield on 91-day Treasury bills. 
C)  the prime rate. 
D)  the overnight rate.

Question 14

Ms. Smith borrowed $1,250 at a 11% stated rate of interest and was to pay back the loan in 24 monthly payments. What is her annual rate of interest?

Accepted Answer

A)  10.56% 
B)  21.12% 
C)  18.96% 
D)  22.00% 
A)  10.56% 
B)  21.12% 
C)  18.96% 
D)  22.00%

Question 15

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 16

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Accepted Answer

A) True 
 B)False

Question 17

Monthly instalment loans usually increase the effective rate of borrowing by approximately 2 times the stated rate.

Accepted Answer

A) True 
 B)False

Question 18

Compensating balances are a way for banks to recover the cost of corporate services provided, but not directly charged.

Accepted Answer

A) True 
 B)False

Question 19

Other things being equal, an increase in the number of days that a commercial bank loan is outstanding will mean

Accepted Answer

A)  a reduction in the banks risk 
B)  an increase in the administration costs. 
C)  an increase in the dollar amount of the interest. 
D)  a reduction in the principal amount borrowed. 
A)  a reduction in the banks risk 
B)  an increase in the administration costs. 
C)  an increase in the dollar amount of the interest. 
D)  a reduction in the principal amount borrowed.

Question 20

The required compensating balance is usually computed as a

Accepted Answer

A)  percentage of customer loans outstanding. 
B)  factor of accounts receivable. 
C)  percentage of the bank's commitments toward future loans. 
D)  two of the other answers are correct. 
A)  percentage of customer loans outstanding. 
B)  factor of accounts receivable. 
C)  percentage of the bank's commitments toward future loans. 
D)  two of the other answers are correct.

Bank loans to business firms

Sears Canada Receivables Trust receives a better credit rating than Sears Canada because

A firm has invested in corporate bonds; it may engage in a financial futures contract in order to protect itself from

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

In times of tight credit in Canada, Eurodollar loans become difficult to obtain.

The annual effective rate of interest on a loan is a measure that includes the compounding effects on the loan.

Commercial paper that is sold without the use of an actual paper certificate is known as

The factoring of accounts receivable consists of

Financial institution deregulation has eased competition between banks, trust companies, and foreign financial institutions.

The London Interbank Offered Rate (LIBOR)

The bank rate is determined by

Ms. Smith borrowed $1,250 at a 11% stated rate of interest and was to pay back the loan in 24 monthly payments. What is her annual rate of interest?

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

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Monthly instalment loans usually increase the effective rate of borrowing by approximately 2 times the stated rate.

Compensating balances are a way for banks to recover the cost of corporate services provided, but not directly charged.

Other things being equal, an increase in the number of days that a commercial bank loan is outstanding will mean

The required compensating balance is usually computed as a

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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Exam 8: Sources of Short-Term Financing

Bank loans to business firms

Sears Canada Receivables Trust receives a better credit rating than Sears Canada because

A firm has invested in corporate bonds; it may engage in a financial futures contract in order to protect itself from

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

In times of tight credit in Canada, Eurodollar loans become difficult to obtain.

The annual effective rate of interest on a loan is a measure that includes the compounding effects on the loan.

Commercial paper that is sold without the use of an actual paper certificate is known as

The factoring of accounts receivable consists of

Financial institution deregulation has eased competition between banks, trust companies, and foreign financial institutions.

The London Interbank Offered Rate (LIBOR)

The bank rate is determined by

Ms. Smith borrowed $1,250 at a 11% stated rate of interest and was to pay back the loan in 24 monthly payments. What is her annual rate of interest?

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

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Monthly instalment loans usually increase the effective rate of borrowing by approximately 2 times the stated rate.

Compensating balances are a way for banks to recover the cost of corporate services provided, but not directly charged.

Other things being equal, an increase in the number of days that a commercial bank loan is outstanding will mean

The required compensating balance is usually computed as a

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