Question 1

A line of credit is a legal obligation of the bank to provide funds up to the agreed-upon borrowing limit for a period of time.

Accepted Answer

A) True 
 B)False

Question 2

Tangshan Mining was extended credit terms of 4/10 net 30. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, is closest to

Accepted Answer

A)  76% 
B)  50.7% 
C)  75% 
D)  73% 
A)  76% 
B)  50.7% 
C)  75% 
D)  73%

Question 3

In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:

Accepted Answer

A)  $110,000 
B)  $111,111 
C)  $100,000 
D)  $90,000 
A)  $110,000 
B)  $111,111 
C)  $100,000 
D)  $90,000

Question 4

An acceptance is a receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer's bank.

Accepted Answer

A) True 
 B)False

Question 5

In general,

Accepted Answer

A)  a revolving credit agreement is more expensive but less risky to the firm than a line of credit. 
B)  a revolving credit agreement is more expensive and more risky to the firm than a line of credit. 
C)  a revolving credit agreement is less expensive and less risky to the firm than a line of credit. 
D)  a revolving credit agreement is less expensive but more risky to the firm than a line of credit. 
A)  a revolving credit agreement is more expensive but less risky to the firm than a line of credit. 
B)  a revolving credit agreement is more expensive and more risky to the firm than a line of credit. 
C)  a revolving credit agreement is less expensive and less risky to the firm than a line of credit. 
D)  a revolving credit agreement is less expensive but more risky to the firm than a line of credit.

Question 6

A discounted loan is one in which the borrower receives the principal plus the interest at the time the loan is made.

Accepted Answer

A) True 
 B)False

Question 7

In general, short-term self-liquidating bank loans are intended to:

Accepted Answer

A)  help recapitalize a company. 
B)  help a company finance merger & acquisitions. 
C)  help a company finance seasonal inventory and accounts receivable requirements. 
D)  help a company finance investment in capital assets. 
A)  help recapitalize a company. 
B)  help a company finance merger & acquisitions. 
C)  help a company finance seasonal inventory and accounts receivable requirements. 
D)  help a company finance investment in capital assets.

Question 8

A __________________ is a claim against a customer's inventory when the individual items are indistinguishable.

Accepted Answer

A)  floor plan receipt 
B)  trust receipt 
C)  warehouse receipt 
D)  blanket inventory lien 
A)  floor plan receipt 
B)  trust receipt 
C)  warehouse receipt 
D)  blanket inventory lien

Question 9

The conservative financing approach is a strategy that attempts to match the maturities of assets with the maturities of the liabilities with which they are financed.

Accepted Answer

A) True 
 B)False

Question 10

Discounting has the effect of reducing the available funds received by the borrower while raising the effective interest rate.

Accepted Answer

A) True 
 B)False

Question 11

To compute the effective cost of a revolving agreement, the joint effect of interest on borrowed funds and commitment fees must be considered.

Accepted Answer

A) True 
 B)False

Question 12

The cost of trade credit involving cash discounts as a form of short-term financing is:

Accepted Answer

A)  usually greater than the cost of commercial bank credit 
B)  the lowest of any form of short-term financing 
C)  Neither of these is correct 
A)  usually greater than the cost of commercial bank credit 
B)  the lowest of any form of short-term financing 
C)  Neither of these is correct

Question 13

Commercial paper dealers:

Accepted Answer

A)  lend to small and large businesses on the basis of their receivables outstanding 
B)  restrict their paper dealings to negotiable certificates of commercial banks 
C)  distribute to investors the promissory notes of successful businesses 
D)  distribute to investors the promissory notes of small but rapidly developing businesses 
A)  lend to small and large businesses on the basis of their receivables outstanding 
B)  restrict their paper dealings to negotiable certificates of commercial banks 
C)  distribute to investors the promissory notes of successful businesses 
D)  distribute to investors the promissory notes of small but rapidly developing businesses

Question 14

Stocks and bonds are rarely used as collateral for short-term loans.

Accepted Answer

A) True 
 B)False

Question 15

The effective annual interest rate on a one-year, $1,000,000, 12% discount loan that requires a 10% compensating balance is

Accepted Answer

A)  22%. 
B)  13.3%. 
C)  13.6%. 
D)  12.0%. 
A)  22%. 
B)  13.3%. 
C)  13.6%. 
D)  12.0%.

Question 16

A receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer's bank is termed a (n):

Accepted Answer

A)  acceptance 
B)  assignment 
C)  co-maker loan 
D)  warehouse loan 
A)  acceptance 
B)  assignment 
C)  co-maker loan 
D)  warehouse loan

Question 17

When old short-term debt is replaced by new short-term debt as the old debt comes due, the process is known as:

Accepted Answer

A)  compensating balance 
B)  rolling the debt 
C)  fluctuating financing 
D)  re-terming 
A)  compensating balance 
B)  rolling the debt 
C)  fluctuating financing 
D)  re-terming

Question 18

A commercial finance company typically purchases the accounts receivable outright and assumes all credit risks.

Accepted Answer

A) True 
 B)False

Question 19

A revolving credit agreement is a commitment in the form of a standby agreement for a guaranteed line of credit.

Accepted Answer

A) True 
 B)False

Question 20

The largest providers of short-term financing are:

Accepted Answer

A)  commercial banks 
B)  commercial finance companies 
C)  factors 
D)  commercial paper issuers 
A)  commercial banks 
B)  commercial finance companies 
C)  factors 
D)  commercial paper issuers

A line of credit is a legal obligation of the bank to provide funds up to the agreed-upon borrowing limit for a period of time.

Tangshan Mining was extended credit terms of 4/10 net 30. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, is closest to

In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:

An acceptance is a receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer's bank.

In general,

A discounted loan is one in which the borrower receives the principal plus the interest at the time the loan is made.

In general, short-term self-liquidating bank loans are intended to:

A __________________ is a claim against a customer's inventory when the individual items are indistinguishable.

The conservative financing approach is a strategy that attempts to match the maturities of assets with the maturities of the liabilities with which they are financed.

Discounting has the effect of reducing the available funds received by the borrower while raising the effective interest rate.

To compute the effective cost of a revolving agreement, the joint effect of interest on borrowed funds and commitment fees must be considered.

The cost of trade credit involving cash discounts as a form of short-term financing is:

Commercial paper dealers:

Stocks and bonds are rarely used as collateral for short-term loans.

The effective annual interest rate on a one-year, $1,000,000, 12% discount loan that requires a 10% compensating balance is

A receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer's bank is termed a (n):

When old short-term debt is replaced by new short-term debt as the old debt comes due, the process is known as:

A commercial finance company typically purchases the accounts receivable outright and assumes all credit risks.

A revolving credit agreement is a commitment in the form of a standby agreement for a guaranteed line of credit.

The largest providers of short-term financing are:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

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Exam 16: Short-Term Business Financing

A line of credit is a legal obligation of the bank to provide funds up to the agreed-upon borrowing limit for a period of time.

Tangshan Mining was extended credit terms of 4/10 net 30. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, is closest to

In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:

An acceptance is a receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer's bank.

In general,

A discounted loan is one in which the borrower receives the principal plus the interest at the time the loan is made.

In general, short-term self-liquidating bank loans are intended to:

A __________________ is a claim against a customer's inventory when the individual items are indistinguishable.

The conservative financing approach is a strategy that attempts to match the maturities of assets with the maturities of the liabilities with which they are financed.

Discounting has the effect of reducing the available funds received by the borrower while raising the effective interest rate.

To compute the effective cost of a revolving agreement, the joint effect of interest on borrowed funds and commitment fees must be considered.

The cost of trade credit involving cash discounts as a form of short-term financing is:

Commercial paper dealers:

Stocks and bonds are rarely used as collateral for short-term loans.

The effective annual interest rate on a one-year, $1,000,000, 12% discount loan that requires a 10% compensating balance is

A receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer's bank is termed a (n):

When old short-term debt is replaced by new short-term debt as the old debt comes due, the process is known as:

A commercial finance company typically purchases the accounts receivable outright and assumes all credit risks.

A revolving credit agreement is a commitment in the form of a standby agreement for a guaranteed line of credit.

The largest providers of short-term financing are:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters