Question 1

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 2

A term loan is usually characterized by

Accepted Answer

A)  a maturity of one to seven years. 
B)  a variable interest rate. 
C)  monthly or quarterly installment payments. 
D)  all of these options are true. 
A)  a maturity of one to seven years. 
B)  a variable interest rate. 
C)  monthly or quarterly installment payments. 
D)  all of these options are true.

Question 3

Kantorovich Company normally takes 30 days to pay for its average daily credit purchases of $2,000. It has average daily sales of $3,000, and collects accounts in 25 days. What is its net credit position?

Accepted Answer

A)  $15,000 
B)  $1,000 
C)  ($1,000) 
D)  ($15,000) 
A)  $15,000 
B)  $1,000 
C)  ($1,000) 
D)  ($15,000)

Question 4

Bank loans to business firms

Accepted Answer

A)  are usually short-term in nature. 
B)  are preferred by the banker to be self-liquidating. 
C)  may require compensating balances. 
D)  All of these options are true. 
A)  are usually short-term in nature. 
B)  are preferred by the banker to be self-liquidating. 
C)  may require compensating balances. 
D)  All of these options are true.

Question 5

Compensating balances represent unfair hidden costs of borrowing.

Accepted Answer

A) True 
 B)False

Question 6

The annual percentage rate (APR) is generally lower than the interest rate stated by the bank.

Accepted Answer

A) True 
 B)False

Question 7

The Truth in Lending law is primarily designed to protect

Accepted Answer

A)  corporate borrowers. 
B)  banks. 
C)  consumers. 
D)  investors in municipal bonds. 
A)  corporate borrowers. 
B)  banks. 
C)  consumers. 
D)  investors in municipal bonds.

Question 8

Approximately 40% of all short-term financing is in the form of accounts payable or trade credit.

Accepted Answer

A) True 
 B)False

Question 9

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 10

A trust receipt acknowledges that the lender trusts the borrower to repay the loan before any dividends are paid.

Accepted Answer

A) True 
 B)False

Question 11

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Accepted Answer

A) True 
 B)False

Question 12

Issuers of commercial paper can be divided into finance paper or direct paper, dealer paper, and asset-backed commercial paper.

Accepted Answer

A) True 
 B)False

Question 13

One major advantage of commercial paper is that it can always be "rolled over" (reissued) when it matures.

Accepted Answer

A) True 
 B)False

Question 14

The London Interbank Offered Rate (LIBOR) is used to set a base lending rate for some U.S. domestic corporate loans.

Accepted Answer

A) True 
 B)False

Question 15

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 16

"Stretching the payment period" refers to the practice of trying to take a trade discount after the discount period.

Accepted Answer

A) True 
 B)False

Question 17

A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of the manufacturing firm?

Accepted Answer

A)  Decreased receivables 
B)  Increased receivables 
C)  Increased payables 
D)  Decreased payables 
A)  Decreased receivables 
B)  Increased receivables 
C)  Increased payables 
D)  Decreased payables

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The most common form of short-term financing is a bank loan.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 8: Sources of Short-Term Financing

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

A term loan is usually characterized by

Kantorovich Company normally takes 30 days to pay for its average daily credit purchases of $2,000. It has average daily sales of $3,000, and collects accounts in 25 days. What is its net credit position?

Bank loans to business firms

Compensating balances represent unfair hidden costs of borrowing.

The annual percentage rate (APR) is generally lower than the interest rate stated by the bank.

The Truth in Lending law is primarily designed to protect

Approximately 40% of all short-term financing is in the form of accounts payable or trade credit.

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

A trust receipt acknowledges that the lender trusts the borrower to repay the loan before any dividends are paid.

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Issuers of commercial paper can be divided into finance paper or direct paper, dealer paper, and asset-backed commercial paper.

One major advantage of commercial paper is that it can always be "rolled over" (reissued) when it matures.

The London Interbank Offered Rate (LIBOR) is used to set a base lending rate for some U.S. domestic corporate loans.

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

"Stretching the payment period" refers to the practice of trying to take a trade discount after the discount period.

A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of the manufacturing firm?

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

The most common form of short-term financing is a bank loan.

The required compensating balance is usually computed as a

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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