Question 1

East Coast Cleaners borrows $20,000 for 120 days and pays $400 interest. What is the effective rate of interest if the loan is discounted?

Accepted Answer

A)  Less than 5.5% 
B)  More than 5.5% but less than 6.0% 
C)  More than 6.0% but less than 6.5% 
D)  More than 6.5% 
A)  Less than 5.5% 
B)  More than 5.5% but less than 6.0% 
C)  More than 6.0% but less than 6.5% 
D)  More than 6.5%

Question 2

Firms exposed to the risk of interest rate changes may reduce that risk by

Accepted Answer

A)  obtaining a Eurodollar loan. 
B)  hedging in the commodities market. 
C)  hedging in the financial futures market. 
D)  pledging or factoring accounts receivable. 
A)  obtaining a Eurodollar loan. 
B)  hedging in the commodities market. 
C)  hedging in the financial futures market. 
D)  pledging or factoring accounts receivable.

Question 3

Small companies finance a relatively greater proportion of their assets through trade credit than do larger firms.

Accepted Answer

A) True 
 B)False

Question 4

One major disadvantage of commercial paper is that if the company's credit quality declines, refinancing existing commercial paper might be impossible to achieve through a new issue of commercial paper.

Accepted Answer

A) True 
 B)False

Question 5

Accounts receivable may be used as a source of financing by

Accepted Answer

A)  pledging the receivables as loan collateral. 
B)  "factoring" the receivables to a finance company. 
C)  selling securities backed by the receivables. 
D)  All of these options are correct. 
A)  pledging the receivables as loan collateral. 
B)  "factoring" the receivables to a finance company. 
C)  selling securities backed by the receivables. 
D)  All of these options are correct.

Question 6

A term loan is less risky to the bank, thus they provide a fixed rate to the customer.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  The prime rate 
B)  The nominal rate 
C)  The effective rate 
D)  The discount rate 
A)  The prime rate 
B)  The nominal rate 
C)  The effective rate 
D)  The discount rate

Question 8

Myrdal Boots can take a cash discount but has to borrow money from the bank to do so. The bank offers a 12% interest rate. The terms of the cash discount are 3/10, net 90. Because of this, Myrdal Boots should borrow from the bank to take the discount.

Accepted Answer

A) True 
 B)False

Question 9

What is generally the largest source of short-term credit for small firms?

Accepted Answer

A)  Bank loans 
B)  Commercial paper 
C)  Installment loans 
D)  Trade credit 
A)  Bank loans 
B)  Commercial paper 
C)  Installment loans 
D)  Trade credit

Question 10

Which of the following is NOT a benefit of commercial paper to a corporation?

Accepted Answer

A)  It is often issued at below the prime interest rate. 
B)  There are no compensating balance requirements. 
C)  It is less risky. 
D)  It provides prestige to the issuer. 
A)  It is often issued at below the prime interest rate. 
B)  There are no compensating balance requirements. 
C)  It is less risky. 
D)  It provides prestige to the issuer.

Question 11

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 12

Which of the following is NOT a method for controlling pledged inventory?

Accepted Answer

A)  Blanket inventory liens 
B)  Floor planning 
C)  Public warehousing 
D)  Each of the above is an inventory control method. 
A)  Blanket inventory liens 
B)  Floor planning 
C)  Public warehousing 
D)  Each of the above is an inventory control method.

Question 13

Trade credit is considered what type of loan?

Accepted Answer

A)  when a firm owes money to a supplier. 
B)  when a firm owes money to a customer. 
C)  when a firm owes money to a bank. 
D)  all of the answers are true. 
A)  when a firm owes money to a supplier. 
B)  when a firm owes money to a customer. 
C)  when a firm owes money to a bank. 
D)  all of the answers are true.

Question 14

Eurodollar loans are similar to U.S. bank loans in that they are usually short-term to intermediate-term in nature.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is associated with the recession of 2007-2009?

Accepted Answer

A)  Hundreds of bank failures occurred. 
B)  The Federal Reserve and the Federal Deposit Insurance Corporation forced large banks at risk of collapse to be taken over by healthy banks. 
C)  Commercial banks and investment banks were allowed to merge. 
D)  All of these options are correct. 
A)  Hundreds of bank failures occurred. 
B)  The Federal Reserve and the Federal Deposit Insurance Corporation forced large banks at risk of collapse to be taken over by healthy banks. 
C)  Commercial banks and investment banks were allowed to merge. 
D)  All of these options are correct.

Question 16

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

Accepted Answer

A)  It is issued by large firms. 
B)  It has a one- to two-year maturity. 
C)  Its rates are usually below prime rates on business loans. 
D)  All of these options are commercial paper characteristics. 
A)  It is issued by large firms. 
B)  It has a one- to two-year maturity. 
C)  Its rates are usually below prime rates on business loans. 
D)  All of these options are commercial paper characteristics.

Question 17

From the banker's point of view, short-term bank credit is an excellent way of financing

Accepted Answer

A)  fixed assets. 
B)  permanent working capital needs. 
C)  repayment of long-term debt. 
D)  seasonal bulges in inventory and receivables. 
A)  fixed assets. 
B)  permanent working capital needs. 
C)  repayment of long-term debt. 
D)  seasonal bulges in inventory and receivables.

East Coast Cleaners borrows $20,000 for 120 days and pays $400 interest. What is the effective rate of interest if the loan is discounted?

Firms exposed to the risk of interest rate changes may reduce that risk by

Small companies finance a relatively greater proportion of their assets through trade credit than do larger firms.

One major disadvantage of commercial paper is that if the company's credit quality declines, refinancing existing commercial paper might be impossible to achieve through a new issue of commercial paper.

Accounts receivable may be used as a source of financing by

A term loan is less risky to the bank, thus they provide a fixed rate to the customer.

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

Myrdal Boots can take a cash discount but has to borrow money from the bank to do so. The bank offers a 12% interest rate. The terms of the cash discount are 3/10, net 90. Because of this, Myrdal Boots should borrow from the bank to take the discount.

What is generally the largest source of short-term credit for small firms?

Which of the following is NOT a benefit of commercial paper to a corporation?

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

Which of the following is NOT a method for controlling pledged inventory?

Trade credit is considered what type of loan?

Eurodollar loans are similar to U.S. bank loans in that they are usually short-term to intermediate-term in nature.

Which of the following is associated with the recession of 2007-2009?

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

From the banker's point of view, short-term bank credit is an excellent way of financing

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

East Coast Cleaners borrows $20,000 for 120 days and pays $400 interest. What is the effective rate of interest if the loan is discounted?

Firms exposed to the risk of interest rate changes may reduce that risk by

Small companies finance a relatively greater proportion of their assets through trade credit than do larger firms.

One major disadvantage of commercial paper is that if the company's credit quality declines, refinancing existing commercial paper might be impossible to achieve through a new issue of commercial paper.

Accounts receivable may be used as a source of financing by

A term loan is less risky to the bank, thus they provide a fixed rate to the customer.

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

Myrdal Boots can take a cash discount but has to borrow money from the bank to do so. The bank offers a 12% interest rate. The terms of the cash discount are 3/10, net 90. Because of this, Myrdal Boots should borrow from the bank to take the discount.

What is generally the largest source of short-term credit for small firms?

Which of the following is NOT a benefit of commercial paper to a corporation?

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

Which of the following is NOT a method for controlling pledged inventory?

Trade credit is considered what type of loan?

Eurodollar loans are similar to U.S. bank loans in that they are usually short-term to intermediate-term in nature.

Which of the following is associated with the recession of 2007-2009?

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

From the banker's point of view, short-term bank credit is an excellent way of financing

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