Question 1

A compensating balance will be lower in periods of tight money than in periods of credit ease.

Accepted Answer

A) True 
 B)False

Question 2

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& PRAI

Question 3

Which method of controlling pledged inventory provides the greatest degree of security to the lender?

Accepted Answer

A)  Blanket inventory liens. 
B)  Overall inventory liens. 
C)  Trust receipts. 
D)  Warehousing. 
A)  Blanket inventory liens. 
B)  Overall inventory liens. 
C)  Trust receipts. 
D)  Warehousing.

Question 4

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 5

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 6

Commercial paper has an advantage that:

Accepted Answer

A)  it has low probability of default. 
B)  it requires small compensating balances. 
C)  it is secured by an independent third party. 
D)  it requires no compensating balances. 
A)  it has low probability of default. 
B)  it requires small compensating balances. 
C)  it is secured by an independent third party. 
D)  it requires no compensating balances.

Question 7

The financial futures market:

Accepted Answer

A)  is a place in Chicago or Toronto where future stocks are traded. 
B)  allows for the trading of a financial instruments at a future point in time. 
C)  is of particular value to small investors in managing their portfolios. 
D)  increases the cost of hedging. 
A)  is a place in Chicago or Toronto where future stocks are traded. 
B)  allows for the trading of a financial instruments at a future point in time. 
C)  is of particular value to small investors in managing their portfolios. 
D)  increases the cost of hedging.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

You are considering buying a new big screen TV from the BIG Electronics Co.BIG has offered to finance your purchase by extending credit to you.The terms of the credit are 12 easy monthly payments of $95.If you choose to finance this purchase,rather than pay the cash price of $850,what would your annual interest on this loan be?

Accepted Answer

A)  20.63% 
B)  34.12% 
C)  57.99% 
D)  74.56% 
A)  20.63% 
B)  34.12% 
C)  57.99% 
D)  74.56%

Question 10

What is a compensating balance and what is its purpose? Is it commonly used? Why or why not?

Accepted Answer

In providing loans and other services,ba

Question 11

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

Accepted Answer

• Generally it is cheaper (funds are rai

Question 12

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

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 13

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 14

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 15

Bank loans to business firms:

Accepted Answer

A)  are usually long-term in nature. 
B)  are preferred by the business not to be self-liquidating. 
C)  may require commercial paper to be issued. 
D)  may require compensating balances. 
A)  are usually long-term in nature. 
B)  are preferred by the business not to be self-liquidating. 
C)  may require commercial paper to be issued. 
D)  may require compensating balances.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Commercial paper was a popular financing method before the credit crunch of 2007-08 due to:

Accepted Answer

A)  Higher borrowing rates for qualified firms compared to bank rates. 
B)  Decreased ability of corporations to raise short-term funds. 
C)  Decrease in government borrowing. 
D)  Lower costs to borrowers for bankers' acceptances. 
A)  Higher borrowing rates for qualified firms compared to bank rates. 
B)  Decreased ability of corporations to raise short-term funds. 
C)  Decrease in government borrowing. 
D)  Lower costs to borrowers for bankers' acceptances.

Question 18

The effective annual rate on a loan will always be higher than the stated rate because the effective annual rate takes into account compounding.

Accepted Answer

A) True 
 B)False

Question 19

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 20

The cost of not taking the discount on trade credit of 3/10,net 30 is equal to:

Accepted Answer

A)  57.75%. 
B)  55.67%. 
C)  56.44%. 
D)  36.50%. 
A)  57.75%. 
B)  55.67%. 
C)  56.44%. 
D)  36.50%.

A compensating balance will be lower in periods of tight money than in periods of credit ease.

Which method of controlling pledged inventory provides the greatest degree of security to the lender?

Bank loans to business firms:

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

Commercial paper has an advantage that:

The financial futures market:

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

What is a compensating balance and what is its purpose? Is it commonly used? Why or why not?

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

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

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

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

Bank loans to business firms:

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

Commercial paper was a popular financing method before the credit crunch of 2007-08 due to:

The effective annual rate on a loan will always be higher than the stated rate because the effective annual rate takes into account compounding.

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

The cost of not taking the discount on trade credit of 3/10,net 30 is equal to:

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

A compensating balance will be lower in periods of tight money than in periods of credit ease.

Which method of controlling pledged inventory provides the greatest degree of security to the lender?

Bank loans to business firms:

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

Commercial paper has an advantage that:

The financial futures market:

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

What is a compensating balance and what is its purpose? Is it commonly used? Why or why not?

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

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

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

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

Bank loans to business firms:

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

Commercial paper was a popular financing method before the credit crunch of 2007-08 due to:

The effective annual rate on a loan will always be higher than the stated rate because the effective annual rate takes into account compounding.

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

The cost of not taking the discount on trade credit of 3/10,net 30 is equal to:

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