Exam 16: Current Liabilities Management

In doing business in foreign countries, financing operations in the local market not only improves the company's business ties to the host community but also minimizes exchange rate risk.

The percentage advance constitutes the principal of the secured loan and varies not only according to the type and liquidity of collateral but also according to the type of security interest being taken.

Generally the increment above the prime rate on a floating-rate loan will be higher than on a fixed-rate loan of equivalent risk because the lender bears higher risk with a floating-rate loan.

The interest paid by the issuer of commercial paper is determined by the size of the discount and the length of time to maturity.

A firm purchased goods on January 27 with a purchase price of $1,000 and credit terms of 2/10 net 30 EOM. The firm paid for these goods on February 9. The firm must pay ________ for the goods.

A floating inventory lien is most attractive when the firm has a stable level of inventory that consists of a diversified group of relatively inexpensive merchandise.

1/15 net 30 date of invoice translates as

Operating change restrictions are contractual restrictions that a bank may impose on a firm as part of a line of credit agreement.

Short-term loans that businesses obtain from banks and through commercial paper are

Hayley's Theatrical Supply is in the process of negotiating a line of credit with two local banks. The prime rate is currently 8 percent. The terms follow: (a) Calculate the effective interest rate of both banks. (b) Recommend which bank's line of credit Hayley's Theatrical Supply should accept.

________ ensure that money lent under a line of credit agreement is actually being used to finance seasonal needs.

The cost of borrowing through the sale of commercial paper is typically ________ the prime bank loan rate.

A firm has a line of credit and borrows $25,000 at 9 percent interest for 180 days or half a year. What is the effective rate of interest on this loan if the interest is paid in advance?

One of the most common designations for the beginning of the credit period is

The interest rate charged on secured short-term loans is typically higher than the rate on unsecured short-term loans.

The discount rate is the lowest rate of interest charged by the nation's leading banks on business loans to their most important and reliable business borrowers.

Tangshan Mining issued $10,000 of commercial paper for $9,925 for 60 days. Based on this information, the effective annual rate of interest on the commercial paper would be about 4.69 percent.

A firm arranges a discount loan at a 12 percent interest rate, and borrows $100,000 for one year. The stated interest rate is ________ and the effective interest rate is ________.

If one borrows $1,000 at 8 percent interest on a discount basis, the effective rate of interest is about 9.7 percent.

Generally as sales increase a company needs more inventory and more employees resulting in