Question 1

The prime rate

Accepted Answer

A)  is the rate a bank charges its risky customers. 
B)  has been quite volatile during the past two decades, moving as much as 8 percentage points in a 12-month period. 
C)  is usually lower than Treasury bill rates. 
D)  none of these. 
A)  is the rate a bank charges its risky customers. 
B)  has been quite volatile during the past two decades, moving as much as 8 percentage points in a 12-month period. 
C)  is usually lower than Treasury bill rates. 
D)  none of these.

Question 2

Match the following with the items below:

Accepted Answer

The answer of Match the following with the items below:
...

Question 3

Match between columns
                        Premises: An unsecured promissory note issued by a large corporation to investors.
A measure of the effective rate of a loan.
The practice of using accounts receivables from sales of computers and automobiles, for example, to collateralize an offering of securities in the secondary market.
A legal entity in which one key bank owns a number of affiliate banks as well as other nonbank subsidiaries engaged in related activities.
A loan from a foreign bank denominated in U.S. dollars.
Arise through the normal course of business from various points within the firm.
A measure of the relationship between accounts receivable and accounts payable for the firm.
The interest level charged to a bank's most creditworthy customers.
A reduction in price if a payment is made within a specified time.
An extension of credit generally for a time period from one to seven years.
A benchmark interest rate set in Europe that is competitive with the US Prime rate.
Bank loans that are usually paid off as the inventory is sold and cash is collected.
A bank requirement that business customers maintain a minimal level of cash in their account.
Use a series of equal payments to retire a loan.

Accepted Answer

The Answer of spontaneous sources of funds and bank holding is...

Question 4

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 5

In times of tight credit in the United States, Eurodollar loans become difficult to obtain.

Accepted Answer

A) True 
 B)False

Question 6

The sale of asset-backed securities can sometimes enable the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  Less than 11.4 percent 
B)  More than 11.4 percent, but less than 11.6 percent 
C)  More than 11.6 percent, but less than 11.8 percent 
D)  More than 11.8 percent 
A)  Less than 11.4 percent 
B)  More than 11.4 percent, but less than 11.6 percent 
C)  More than 11.6 percent, but less than 11.8 percent 
D)  More than 11.8 percent

Question 8

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. 
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.

Question 9

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 10

The cost of not taking a 2/10, net 30 cash discount is usually less than the prime rate.

Accepted Answer

A) True 
 B)False

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

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.

Question 13

The Truth in Lending law is 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 14

In order to finance a shipment of badminton sets, Rujisawa Import-Export is seeking a $700,000 one-year bank loan. The Marine Bank requires that Rujisawa maintain a 25% compensating balance and requires four quarterly payments. The Lincoln Bank requires only a 15% compensating balance, but requires 12 monthly payments. In addition, Lincoln discounts the loan. Both banks state that their interest rate is 8%.
a) Which bank has the lowest effective interest rate?
(NOTE: deduct the compensating balances from the principal in determining the effective rate)
b) If Lincoln Bank eliminated its compensating-balance requirement, would your answer change?

Accepted Answer

The answer of In order to finance a shipment of...

Question 15

Although the LIBOR has remained competitive and comparable to the US Prime rate, it has remained slightly higher than the prime rate in the past 15 years.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Myrdal Boots can borrow from its bank at 12 percent to take a cash discount. The terms of the cash discount are 3/10, net 90. Myrdal Boots should borrow from the bank to take the discount.

Accepted Answer

A) True 
 B)False

Question 18

Trade credit is usually extended for periods of one year or more.

Accepted Answer

A) True 
 B)False

Question 19

The APR is generally lower than the stated rate by the bank.

Accepted Answer

A) True 
 B)False

Question 20

A term loan is usually characterized by

Accepted Answer

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

The prime rate

Match the following with the items below:

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

In times of tight credit in the United States, Eurodollar loans become difficult to obtain.

The sale of asset-backed securities can sometimes enable the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

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

Bank loans to business firms

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 2/10, net 30 cash discount is usually less than the prime rate.

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

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

The Truth in Lending law is designed to protect

Although the LIBOR has remained competitive and comparable to the US Prime rate, it has remained slightly higher than the prime rate in the past 15 years.

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

Myrdal Boots can borrow from its bank at 12 percent to take a cash discount. The terms of the cash discount are 3/10, net 90. Myrdal Boots should borrow from the bank to take the discount.

Trade credit is usually extended for periods of one year or more.

The APR is generally lower than the stated rate by the bank.

A term loan is usually characterized by

The Goals and Functions 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

The prime rate

Match the following with the items below:

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

In times of tight credit in the United States, Eurodollar loans become difficult to obtain.

The sale of asset-backed securities can sometimes enable the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

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

Bank loans to business firms

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 2/10, net 30 cash discount is usually less than the prime rate.

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

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

The Truth in Lending law is designed to protect

Although the LIBOR has remained competitive and comparable to the US Prime rate, it has remained slightly higher than the prime rate in the past 15 years.

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

Myrdal Boots can borrow from its bank at 12 percent to take a cash discount. The terms of the cash discount are 3/10, net 90. Myrdal Boots should borrow from the bank to take the discount.

Trade credit is usually extended for periods of one year or more.

The APR is generally lower than the stated rate by the bank.

A term loan is usually characterized by

The Goals and Functions 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