Question 1

The extent to which inventory financing may be used depends on:

Accepted Answer

A)  prime rate of interest. 
B)  cost of goods. 
C)  how fragile the goods are. 
D)  how perishable the goods are. 
A)  prime rate of interest. 
B)  cost of goods. 
C)  how fragile the goods are. 
D)  how perishable the goods are. D

Question 2

A discounted loan features subtraction of the calculated interest payment in advance.

Accepted Answer

A) True 
 B)False  True

Question 3

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  True

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

The London Interbank Offered Rate (LIBOR):

Accepted Answer

A)  competes with the prime rate domestically for international firms. 
B)  often is higher than the domestic prime rate. 
C)  is the loan rate offered by chartered banks to its best customers. 
D)  is the rate used when banks lend to each other. 
A)  competes with the prime rate domestically for international firms. 
B)  often is higher than the domestic prime rate. 
C)  is the loan rate offered by chartered banks to its best customers. 
D)  is the rate used when banks lend to each other.

Question 8

Holland Construction Co.has an outstanding 180-day bank loan of $400,000 at an annual interest rate of 9.5%.The company is required to maintain a 15% compensating balance in its chequing account.What is the annual interest cost on the loan? Assume the company would not normally maintain this average amount.

Accepted Answer

A)  11.18% 
B)  9.5% 
C)  15.00% 
D)  20.00% 
A)  11.18% 
B)  9.5% 
C)  15.00% 
D)  20.00%

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

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)  3.5% 
C)  4.7% 
D)  11.7% 
A)  1.2% 
B)  3.5% 
C)  4.7% 
D)  11.7%

Question 14

A trade discount is a percentage reduction from the invoice price given for purchasing certain minimum quantities.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

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

Question 18

When calculating a loan with a 20% compensating balance a firm would borrow ____ in order to have available funds of $200,000.

Accepted Answer

A)  $160,000 
B)  $200,000 
C)  $250,000 
D)  $260,000 
A)  $160,000 
B)  $200,000 
C)  $250,000 
D)  $260,000

Question 19

The cost of forgoing the discount on trade credit of 4/10,net 25 is equal to:

Accepted Answer

A)  101.32%. 
B)  87.33%. 
C)  28.8%. 
D)  12.13%. 
A)  101.32%. 
B)  87.33%. 
C)  28.8%. 
D)  12.13%.

Question 20

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

Accepted Answer

A) True 
 B)False

The extent to which inventory financing may be used depends on:

A discounted loan features subtraction of the calculated interest payment in advance.

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

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

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

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

The London Interbank Offered Rate (LIBOR):

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

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

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

Hedging refers to:

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

A trade discount is a percentage reduction from the invoice price given for purchasing certain minimum quantities.

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

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

When calculating a loan with a 20% compensating balance a firm would borrow ____ in order to have available funds of $200,000.

The cost of forgoing the discount on trade credit of 4/10,net 25 is equal to:

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

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

The extent to which inventory financing may be used depends on:

A discounted loan features subtraction of the calculated interest payment in advance.

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

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

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

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

The London Interbank Offered Rate (LIBOR):

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

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

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

Hedging refers to:

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

A trade discount is a percentage reduction from the invoice price given for purchasing certain minimum quantities.

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

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

When calculating a loan with a 20% compensating balance a firm would borrow ____ in order to have available funds of $200,000.

The cost of forgoing the discount on trade credit of 4/10,net 25 is equal to:

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

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