Question 1

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 2

One of the disadvantages of commercial paper is that if the company's credit quality declines,the issuance of additional paper may be impossible.

Accepted Answer

A) True 
 B)False

Question 3

LIBOR is:

Accepted Answer

A)  a resource used in production. 
B)  an interest rate paid on deposits of US dollars 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 deposits of US dollars 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 4

The prime rate:

Accepted Answer

A)  is the rate that banks are charged by the Bank of Canada. 
B)  was over 30% in the early 1980s. 
C)  is fixed over a long period of time. 
D)  is affected by economic and political factors. 
A)  is the rate that banks are charged by the Bank of Canada. 
B)  was over 30% in the early 1980s. 
C)  is fixed over a long period of time. 
D)  is affected by economic and political factors.

Question 5

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 6

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 7

Trade credit may be used to finance a major part of the firm's working capital when:

Accepted Answer

A)  the firm extends less liberal credit terms than the supplier. 
B)  the firm extends more liberal credit terms than the supplier. 
C)  the firm and the supplier both extend the same credit terms. 
D)  neither the firm nor the supplier extends credit. 
A)  the firm extends less liberal credit terms than the supplier. 
B)  the firm extends more liberal credit terms than the supplier. 
C)  the firm and the supplier both extend the same credit terms. 
D)  neither the firm nor the supplier extends credit.

Question 8

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

Question 9

Even during slack loan periods,banks will never loan out money at an interest rate lower than the prime rate because the prime rate is their best rate.

Accepted Answer

A) True 
 B)False

Question 10

The sale of securities backed by the receivables of large credit worthy firms is a large source of financing.

Accepted Answer

A) True 
 B)False

Question 11

On 2/10,net 30 trade terms,if the discount is not taken,the buyer is said to receive 20 days of free credit.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  Issued by large prestigious firms. 
B)  One-to-two year maturity. 
C)  Rates are usually below prime rates on business loans. 
D)  Usually in denominations of $100,000 or more. 
A)  Issued by large prestigious firms. 
B)  One-to-two year maturity. 
C)  Rates are usually below prime rates on business loans. 
D)  Usually in denominations of $100,000 or more.

Question 13

A large manufacturing firm has been selling on a 3/10,net 30 basis.The firm changes its credit terms to 3.5/9,net 25.What change might be expected on the balance sheets of its customers?

Accepted Answer

A)  Decreased receivables and increased bank loans. 
B)  Increased receivables and increased bank loans. 
C)  Decreased payables and increased bank loans. 
D)  Increased payables and increased bank loans. 
A)  Decreased receivables and increased bank loans. 
B)  Increased receivables and increased bank loans. 
C)  Decreased payables and increased bank loans. 
D)  Increased payables and increased bank loans.

Question 14

Which of the following is not a true statement about commercial paper?

Accepted Answer

A)  Finance paper is sold directly to the lender by the finance company. 
B)  Finance paper is also referred to as direct paper. 
C)  Dealer paper is sold directly to the lender by a finance company. 
D)  Industrial companies,utility firms,or finance companies too small to sell direct paper will sell dealer paper. 
A)  Finance paper is sold directly to the lender by the finance company. 
B)  Finance paper is also referred to as direct paper. 
C)  Dealer paper is sold directly to the lender by a finance company. 
D)  Industrial companies,utility firms,or finance companies too small to sell direct paper will sell dealer paper.

Question 15

Multinational firms have found that they can lower borrowing costs:

Accepted Answer

A)  by borrowing US dollars. 
B)  by issuing more debt. 
C)  by using more bankers' acceptances. 
D)  by borrowing foreign currencies through foreign subsidiaries at rates lower than the Canadian prime and then converting these foreign loans into dollars. 
A)  by borrowing US dollars. 
B)  by issuing more debt. 
C)  by using more bankers' acceptances. 
D)  by borrowing foreign currencies through foreign subsidiaries at rates lower than the Canadian prime and then converting these foreign loans into dollars.

Question 16

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 17

An instalment loan uses a series of equal payments to retire a loan.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Slipshod Machine Tool Co.owes $40,000 to one of its suppliers.The supplier has offered a trade discount of 2/10 net 30.Slipshod can borrow the funds from either of two banks.First City Bank will loan the funds for 20 days at a cost of $400.Upstart Bank offers a discounted loan for 20 days at a cost of $320.
A)What is the cost of failing to take the discount?
B)What is the annual interest rate on each of the loans?
C)Which alternative should Slipshod follow?

Accepted Answer

A) @#IMG-DLM& B)First City: @#IMG-DLM& U

Question 20

Large firms tend to be:

Accepted Answer

A)  net users of trade credit. 
B)  net suppliers of trade credit. 
C)  firms with high levels of profitability. 
D)  firms with low levels of inventory turnover and accounts receivable turnover. 
A)  net users of trade credit. 
B)  net suppliers of trade credit. 
C)  firms with high levels of profitability. 
D)  firms with low levels of inventory turnover and accounts receivable turnover.

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

One of the disadvantages of commercial paper is that if the company's credit quality declines,the issuance of additional paper may be impossible.

LIBOR is:

The prime rate:

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

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

Trade credit may be used to finance a major part of the firm's working capital when:

The bank rate is determined by:

Even during slack loan periods,banks will never loan out money at an interest rate lower than the prime rate because the prime rate is their best rate.

The sale of securities backed by the receivables of large credit worthy firms is a large source of financing.

On 2/10,net 30 trade terms,if the discount is not taken,the buyer is said to receive 20 days of free credit.

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

A large manufacturing firm has been selling on a 3/10,net 30 basis.The firm changes its credit terms to 3.5/9,net 25.What change might be expected on the balance sheets of its customers?

Which of the following is not a true statement about commercial paper?

Multinational firms have found that they can lower borrowing costs:

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

An instalment loan uses a series of equal payments to retire a loan.

Compensating balances:

Large firms tend to be:

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

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

One of the disadvantages of commercial paper is that if the company's credit quality declines,the issuance of additional paper may be impossible.

LIBOR is:

The prime rate:

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

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

Trade credit may be used to finance a major part of the firm's working capital when:

The bank rate is determined by:

Even during slack loan periods,banks will never loan out money at an interest rate lower than the prime rate because the prime rate is their best rate.

The sale of securities backed by the receivables of large credit worthy firms is a large source of financing.

On 2/10,net 30 trade terms,if the discount is not taken,the buyer is said to receive 20 days of free credit.

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

A large manufacturing firm has been selling on a 3/10,net 30 basis.The firm changes its credit terms to 3.5/9,net 25.What change might be expected on the balance sheets of its customers?

Which of the following is not a true statement about commercial paper?

Multinational firms have found that they can lower borrowing costs:

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

An instalment loan uses a series of equal payments to retire a loan.

Compensating balances:

Large firms tend to be:

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