Question 1

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 2

Commercial paper offers which of the following advantages to the issuer?

Accepted Answer

A)  It may be issued below the prime rate. 
B)  It requires no compensating balances. 
C)  It is secured by corporate assets to protect the buyer. 
D)  It may be issued below the prime rate and requires no compensating balances. 
A)  It may be issued below the prime rate. 
B)  It requires no compensating balances. 
C)  It is secured by corporate assets to protect the buyer. 
D)  It may be issued below the prime rate and requires no compensating balances.

Question 3

Hedging refers to a transaction that avoids any financial risks.

Accepted Answer

A) True 
 B)False

Question 4

The term "credit crunch" refers to a period in which the interest rate on credit is so high that firms cannot afford to borrow money.

Accepted Answer

A) True 
 B)False

Question 5

The required compensating balance is usually computed as a

Accepted Answer

A)  percentage of the customer's loans outstanding. 
B)  factor of accounts receivable. 
C)  percentage of the bank's commitments toward future loans to the customer. 
D)  percentage of the customer's loans outstanding or percentage of the bank's commitments toward future loans to the customer. 
A)  percentage of the customer's loans outstanding. 
B)  factor of accounts receivable. 
C)  percentage of the bank's commitments toward future loans to the customer. 
D)  percentage of the customer's loans outstanding or percentage of the bank's commitments toward future loans to the customer.

Question 6

Von Hayek's Kayaks can borrow $12,500 for 60 days at a cost of $220 interest. What is the effective rate of interest?

Accepted Answer

A)  8.3% 
B)  9.8% 
C)  10.6% 
D)  1.8% 
A)  8.3% 
B)  9.8% 
C)  10.6% 
D)  1.8%

Question 7

LIBOR is

Accepted Answer

A)  a resource used in production. 
B)  an interest rate paid on Eurodollar loans in the London market. 
C)  an interest rate paid by European firms when they borrow Eurodollar deposits from U.S. 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 Eurodollar loans in the London market. 
C)  an interest rate paid by European firms when they borrow Eurodollar deposits from U.S. banks. 
D)  the interest rate paid by the British government on its long-term bonds.

Question 8

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 9

Koopman's Chickens, Inc. plans to borrow $275,000 from its bank for one year. The annual rate of interest is 9%, but a compensating balance of 20% is required. What is the effective rate of interest?

Accepted Answer

A)  Less than 10% 
B)  More than 10% but less than 11.6% 
C)  More than 11.6% but less than 12% 
D)  More than 12% 
A)  Less than 10% 
B)  More than 10% but less than 11.6% 
C)  More than 11.6% but less than 12% 
D)  More than 12%

Question 10

A blanket inventory lien is where items are not identified or tagged, and there is no physical transfer of control of the inventory by the borrower.

Accepted Answer

A) True 
 B)False

Question 11

Firms using commercial paper are generally required to maintain commercial bank lines of credit equal to the amount of the paper outstanding.

Accepted Answer

A) True 
 B)False

Question 12

Holland Construction Co. has an outstanding 180-day bank loan of $475,000 at an annual interest rate of 7.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would not normally maintain this average amount.

Accepted Answer

A)  11.2% 
B)  19.0% 
C)  22.45% 
D)  8.8% 
A)  11.2% 
B)  19.0% 
C)  22.45% 
D)  8.8%

Question 13

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 sell dealer paper instead. 
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 sell dealer paper instead.

Question 14

Finance paper, unlike commercial paper, represents a long-term, unsecured promissory note.

Accepted Answer

A) True 
 B)False

Question 15

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 16

The cost of not taking the discount on trade credit of 3/20, net 90 is approximately ________.

Accepted Answer

A)  15.9% 
B)  16.3% 
C)  18.0% 
D)  17.4% 
A)  15.9% 
B)  16.3% 
C)  18.0% 
D)  17.4%

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Factoring accounts receivable, unlike pledging accounts receivable, typically passes the risk of loss on the accounts receivable to the buyer.

Accepted Answer

A) True 
 B)False

Question 19

The cost of not taking the discount on trade credit of 2/10, net 30 is approximately ________.

Accepted Answer

A)  44.54% 
B)  43.20% 
C)  36.73% 
D)  None of these options are true 
A)  44.54% 
B)  43.20% 
C)  36.73% 
D)  None of these options are true

Question 20

The largest source of short-term funds for most companies is suppliers (trade credit).

Accepted Answer

A) True 
 B)False

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

Commercial paper offers which of the following advantages to the issuer?

Hedging refers to a transaction that avoids any financial risks.

The term "credit crunch" refers to a period in which the interest rate on credit is so high that firms cannot afford to borrow money.

The required compensating balance is usually computed as a

Von Hayek's Kayaks can borrow $12,500 for 60 days at a cost of $220 interest. What is the effective rate of interest?

LIBOR is

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

Koopman's Chickens, Inc. plans to borrow $275,000 from its bank for one year. The annual rate of interest is 9%, but a compensating balance of 20% is required. What is the effective rate of interest?

A blanket inventory lien is where items are not identified or tagged, and there is no physical transfer of control of the inventory by the borrower.

Firms using commercial paper are generally required to maintain commercial bank lines of credit equal to the amount of the paper outstanding.

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

Finance paper, unlike commercial paper, represents a long-term, unsecured promissory note.

Hedging refers to

The cost of not taking the discount on trade credit of 3/20, net 90 is approximately ________.

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

Factoring accounts receivable, unlike pledging accounts receivable, typically passes the risk of loss on the accounts receivable to the buyer.

The cost of not taking the discount on trade credit of 2/10, net 30 is approximately ________.

The largest source of short-term funds for most companies is suppliers (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

Filters

Exam 8: Sources of Short-Term Financing

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

Commercial paper offers which of the following advantages to the issuer?

Hedging refers to a transaction that avoids any financial risks.

The term "credit crunch" refers to a period in which the interest rate on credit is so high that firms cannot afford to borrow money.

The required compensating balance is usually computed as a

Von Hayek's Kayaks can borrow $12,500 for 60 days at a cost of $220 interest. What is the effective rate of interest?

LIBOR is

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

Koopman's Chickens, Inc. plans to borrow $275,000 from its bank for one year. The annual rate of interest is 9%, but a compensating balance of 20% is required. What is the effective rate of interest?

A blanket inventory lien is where items are not identified or tagged, and there is no physical transfer of control of the inventory by the borrower.

Firms using commercial paper are generally required to maintain commercial bank lines of credit equal to the amount of the paper outstanding.

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

Finance paper, unlike commercial paper, represents a long-term, unsecured promissory note.

Hedging refers to

The cost of not taking the discount on trade credit of 3/20, net 90 is approximately ________.

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

Factoring accounts receivable, unlike pledging accounts receivable, typically passes the risk of loss on the accounts receivable to the buyer.

The cost of not taking the discount on trade credit of 2/10, net 30 is approximately ________.

The largest source of short-term funds for most companies is suppliers (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

Filters