Exam 16: Current Liabilities Management

A bank lends a firm $500,000 for one year at 8 percent and requires compensating balances of 10 percent of the face value of the loan. The effective annual interest rate associated with this loan is ________.

Commercial finance companies usually charge a higher interest on secured short-term loans than commercial banks because the finance companies generally ends up with higher-risk borrowers.

A field warehouse is ________.

A floating inventory lien is a lender's claim on the borrower's general inventory as collateral for a secured loan.

If a firm stretches its accounts payable, its cost of giving up a cash discount is increased.

A U.S.-based company that exports goods and has accounts receivable denominated in a foreign currency ________.

Revolving credit agreements are non-guaranteed loans that specify the minimum amount that a firm can owe the bank at any point in time.

A ________ is an agreement between a commercial bank and a business that states the maximum amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time, provided sufficient funds are available.

Accounts payable results from transactions in which merchandise is purchased but no formal note is signed to show the purchaser's liability to the seller.

Short-term, self-liquidating loans are intended to ________.

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

Seasonal buildups of inventory and receivables are generally financed with ________.

A revolving credit agreement is a form of financing consisting of short-term, unsecured promissory notes issued by firms with a high credit standing.

Under the floating inventory lien, the borrower is free to sell the merchandise and is expected to remit the amount lent against each item, along with accrued interest, to the lender immediately after the sale. The lender then releases the lien on the appropriate item.

In giving up a cash discount, the amount of the discount that is given up is the interest being paid by a firm to keep its money by delaying payment for a number of days.

If a firm anticipates stretching accounts payable, its cost of giving up a cash discount is reduced.

Collateral is typically required for a ________.

Accruals are liabilities for services received for which payment has yet to be made.

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

Compared to a line of credit, a revolving credit agreement will be ________ for a firm.