Question 1

With a bank-accepted bill rollover facility the:

Accepted Answer

A)  borrower agrees to accept bills drawn by the bank up to a specified limit. 
B)  borrower agrees to accept bills drawn by the bank up to an unspecified limit. 
C)  bank agrees to accept bills drawn by the borrower up to a specified limit. 
D)  The bank agrees to accept, discount and rollover bills at a fixed interest rate up to a year. 
A)  borrower agrees to accept bills drawn by the bank up to a specified limit. 
B)  borrower agrees to accept bills drawn by the bank up to an unspecified limit. 
C)  bank agrees to accept bills drawn by the borrower up to a specified limit. 
D)  The bank agrees to accept, discount and rollover bills at a fixed interest rate up to a year.

Question 2

Trade credit can be regarded as:

Accepted Answer

A)  finance offered by trading banks. 
B)  short-term debt. 
C)  medium-term debt. 
D)  long-term debt. 
A)  finance offered by trading banks. 
B)  short-term debt. 
C)  medium-term debt. 
D)  long-term debt.

Question 3

Which one of the following statements is true?

Accepted Answer

A)  As a promissory note is a one-name paper, only the buyer is required to endorse it. 
B)  If a bank agrees to accept it, a corporation can issue a promissory note. 
C)  Usually, initial buyers of promissory notes hold them until maturity. 
D)  Typically, a promissory note will be issued for 90 days. 
A)  As a promissory note is a one-name paper, only the buyer is required to endorse it. 
B)  If a bank agrees to accept it, a corporation can issue a promissory note. 
C)  Usually, initial buyers of promissory notes hold them until maturity. 
D)  Typically, a promissory note will be issued for 90 days.

Question 4

Most agreements involving factoring of accounts receivable are made on a _______ basis.

Accepted Answer

A)  non-recourse 
B)  notification 
C)  recourse 
D)  non-notification 
A)  non-recourse 
B)  notification 
C)  recourse 
D)  non-notification

Question 5

One of the advantages to the corporation of an underwriting syndicate for the issue of promissory notes is:

Accepted Answer

A)  they approve the prospectus before distribution to the public. 
B)  the syndicate submits a combined bid for purchase that the corporation compares with other bids. 
C)  the syndicate monitors and coordinates the actions of the different underwriters. 
D)  the underwriting commitment gives the corporation access to a line of credit extending beyond the life of the promissory note. 
A)  they approve the prospectus before distribution to the public. 
B)  the syndicate submits a combined bid for purchase that the corporation compares with other bids. 
C)  the syndicate monitors and coordinates the actions of the different underwriters. 
D)  the underwriting commitment gives the corporation access to a line of credit extending beyond the life of the promissory note.

Question 6

The annual cost of forgoing a cash discount under the terms of sale 2/30 n/90,assuming a 365-day year is:

Accepted Answer

A)  8.0% 
B)  12.2% 
C)  12.4% 
D)  24.0% 
A)  8.0% 
B)  12.2% 
C)  12.4% 
D)  24.0%

Question 7

Which of the following about bank bill financing facility is incorrect?

Accepted Answer

A)  A bill rollover facility is an arrangement whereby the bank agrees to accept and discount new commercial bills for an issuer at each maturity date. 
B)  The yield at which the bill is discounted depends partly on the credit rating of the party that incurs the liability. 
C)  The bank agrees to discount bills up to the agreed amounts with a fixed yield over the life of the rollover facility. 
D)  Bills issued via a rollover facility incorporate the higher credit standing of the bank acceptor. 
A)  A bill rollover facility is an arrangement whereby the bank agrees to accept and discount new commercial bills for an issuer at each maturity date. 
B)  The yield at which the bill is discounted depends partly on the credit rating of the party that incurs the liability. 
C)  The bank agrees to discount bills up to the agreed amounts with a fixed yield over the life of the rollover facility. 
D)  Bills issued via a rollover facility incorporate the higher credit standing of the bank acceptor.

Question 8

A revolving facility for a promissory note issue usually:

Accepted Answer

A)  has a lead manager to organise the issuance. 
B)  offers corporations funding for 180 days. 
C)  gives the issuer the right to cancel the program, subject to 90 days' notice. 
D)  has only an underwriter. 
A)  has a lead manager to organise the issuance. 
B)  offers corporations funding for 180 days. 
C)  gives the issuer the right to cancel the program, subject to 90 days' notice. 
D)  has only an underwriter.

Question 9

Commercial bills are a category of bills of exchange that are issued by commercial banks.

Accepted Answer

A) True 
 B)False

Question 10

When a company finances its short-term assets with short-term debt,this is known as the:

Accepted Answer

A)  identical principle. 
B)  equalisation theory. 
C)  corresponding principle. 
D)  matching principle. 
A)  identical principle. 
B)  equalisation theory. 
C)  corresponding principle. 
D)  matching principle.

Question 11

Promissory notes have a decided advantage over bills in that:

Accepted Answer

A)  they are liquid. 
B)  an issuer of a promissory note does not incur a contingent liability. 
C)  a borrower without a strong name in the markets does not need bank endorsement. 
D)  sole liability to repay the face value at maturity belongs to the underwriting bank(s). 
A)  they are liquid. 
B)  an issuer of a promissory note does not incur a contingent liability. 
C)  a borrower without a strong name in the markets does not need bank endorsement. 
D)  sole liability to repay the face value at maturity belongs to the underwriting bank(s).

Question 12

A supplier who changes its trade credit from 3/10 n/30 to 4/15 n/40 is likely to find:

Accepted Answer

A)  its accounts receivable decrease. 
B)  its risk of bad debts reduces. 
C)  its accounts receivable increase. 
D)  a decrease in sales. 
A)  its accounts receivable decrease. 
B)  its risk of bad debts reduces. 
C)  its accounts receivable increase. 
D)  a decrease in sales.

Question 13

As an alternative to issuing a commercial bill for short-term funds,a corporation may:

Accepted Answer

A)  buy a promissory note. 
B)  issue a convertible note. 
C)  use the overdraft facility of investment bank. 
D)  issue a negotiable certificate of deposit. 
A)  buy a promissory note. 
B)  issue a convertible note. 
C)  use the overdraft facility of investment bank. 
D)  issue a negotiable certificate of deposit.

Question 14

Which maturity date is NOT likely for a bank bill?

Accepted Answer

A)  30 days 
B)  90 days 
C)  180 days 
D)  360 days 
A)  30 days 
B)  90 days 
C)  180 days 
D)  360 days

Question 15

Commercial paper securities are unsecured promissory notes,issued by corporations,which generally mature within 180 days.

Accepted Answer

A) True 
 B)False

Question 16

The initial discounter of a commercial bill is the issuer of the bill who receives the funds.

Accepted Answer

A) True 
 B)False

Question 17

When the factoring company can make a claim against the firm that sold them the accounts this is called _____ arrangement

Accepted Answer

A)  a non-recourse factoring 
B)  a recourse factoring 
C)  a notification factoring 
D)  a non-notification factoring 
A)  a non-recourse factoring 
B)  a recourse factoring 
C)  a notification factoring 
D)  a non-notification factoring

Question 18

The acceptor of a commercial bill undertakes to pay the face value of the bill to the holder at maturity.

Accepted Answer

A) True 
 B)False

Question 19

A bill of exchange differs from a promissory note in that:

Accepted Answer

A)  only promissory notes have an active secondary market. 
B)  a promissory note is a short-term instrument, whereas a bill of exchange is not necessarily short-term. 
C)  there is generally an issuer and an acceptor for a bill of exchange, whereas there is no acceptor involved for a promissory note. 
D)  bills of exchange are only used for trade transactions. 
A)  only promissory notes have an active secondary market. 
B)  a promissory note is a short-term instrument, whereas a bill of exchange is not necessarily short-term. 
C)  there is generally an issuer and an acceptor for a bill of exchange, whereas there is no acceptor involved for a promissory note. 
D)  bills of exchange are only used for trade transactions.

Question 20

A P-note issuer to guarantee all the funds may arrange for:

Accepted Answer

A)  an underwriter. 
B)  a supporting guarantee. 
C)  collateral for the issue. 
D)  all of the given choices. 
A)  an underwriter. 
B)  a supporting guarantee. 
C)  collateral for the issue. 
D)  all of the given choices.

Exam 9: Short-Term Debt

With a bank-accepted bill rollover facility the:

Trade credit can be regarded as:

Which one of the following statements is true?

Most agreements involving factoring of accounts receivable are made on a _______ basis.

One of the advantages to the corporation of an underwriting syndicate for the issue of promissory notes is:

The annual cost of forgoing a cash discount under the terms of sale 2/30 n/90,assuming a 365-day year is:

Which of the following about bank bill financing facility is incorrect?

A revolving facility for a promissory note issue usually:

Commercial bills are a category of bills of exchange that are issued by commercial banks.

When a company finances its short-term assets with short-term debt,this is known as the:

Promissory notes have a decided advantage over bills in that:

A supplier who changes its trade credit from 3/10 n/30 to 4/15 n/40 is likely to find:

As an alternative to issuing a commercial bill for short-term funds,a corporation may:

Which maturity date is NOT likely for a bank bill?

Commercial paper securities are unsecured promissory notes,issued by corporations,which generally mature within 180 days.

The initial discounter of a commercial bill is the issuer of the bill who receives the funds.

When the factoring company can make a claim against the firm that sold them the accounts this is called _____ arrangement

The acceptor of a commercial bill undertakes to pay the face value of the bill to the holder at maturity.

A bill of exchange differs from a promissory note in that:

A P-note issuer to guarantee all the funds may arrange for:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

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