Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Although the prime rate is the rate that U.S. banks charge their most credit-worthy customers, the prime rate is normally higher than the London Interbank Offered Rate (LIBOR).

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

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 6

The annual percentage rate (APR) is a measure of the effective rate of interest on a loan on an annualized basis.

Accepted Answer

A) True 
 B)False

Question 7

Hedging refers to a transaction that avoids any financial risks.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

The commercial paper market is available to all New York Stock Exchange companies.

Accepted Answer

A) True 
 B)False

Question 11

Approximately 40% of all short-term financing is in the form of loans from the bank.

Accepted Answer

A) True 
 B)False

Question 12

Companies to can hedging to eliminate all or some foreign currency risk.

Accepted Answer

A) True 
 B)False

Question 13

Commercial paper is very popular with many firms because

Accepted Answer

A)  it can usually be issued below the prime rate. 
B)  it satisfies the firm's need for long-term funds. 
C)  there are no required lines of credit at the bank. 
D)  it is very simple to roll over (refinance) in times of economic turmoil. 
A)  it can usually be issued below the prime rate. 
B)  it satisfies the firm's need for long-term funds. 
C)  there are no required lines of credit at the bank. 
D)  it is very simple to roll over (refinance) in times of economic turmoil.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Trade credit may be used to finance a major part of a 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 16

The effective rate on a $20,000 installment loan with quarterly payments and $2,000 in total interest for two years is approximately ______.

Accepted Answer

A)  16% 
B)  7.4% 
C)  29.5% 
D)  8.9% 
A)  16% 
B)  7.4% 
C)  29.5% 
D)  8.9%

Question 17

Recent problems facing the U.S. financial system were the result of all but which one of the following?

Accepted Answer

A)  A huge increase in the amount of mortgage-backed securities being bundled up and sold in the markets 
B)  A huge drop in the value of mortgage-backed securities 
C)  An increase in the use of commercial paper for short-term financing 
D)  The government permitting commercial and investment banks to merge 
A)  A huge increase in the amount of mortgage-backed securities being bundled up and sold in the markets 
B)  A huge drop in the value of mortgage-backed securities 
C)  An increase in the use of commercial paper for short-term financing 
D)  The government permitting commercial and investment banks to merge

Question 18

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 19

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 20

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.

Exam 8: Sources of Short-Term Financing

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

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

Although the prime rate is the rate that U.S. banks charge their most credit-worthy customers, the prime rate is normally higher than the London Interbank Offered Rate (LIBOR).

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.

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

The annual percentage rate (APR) is a measure of the effective rate of interest on a loan on an annualized basis.

Hedging refers to a transaction that avoids any financial risks.

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

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

The commercial paper market is available to all New York Stock Exchange companies.

Approximately 40% of all short-term financing is in the form of loans from the bank.

Companies to can hedging to eliminate all or some foreign currency risk.

Commercial paper is very popular with many firms because

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

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

The effective rate on a $20,000 installment loan with quarterly payments and $2,000 in total interest for two years is approximately ______.

Recent problems facing the U.S. financial system were the result of all but which one of the following?

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

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?

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

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

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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