Question 1

Using the conservative approach for financing a firm's assets,long term financing would be used only to finance fixed assets,while short term financing would be used to finance current assets including seasonal fluctuations.

Accepted Answer

A) True 
 B)False

Question 2

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) 15.4%. 
B) 13.3%. 
C) 13.6%. 
D) 12.0%. 
E) none of the above

Question 3

The Small Business Administration:

Accepted Answer

A) lends exclusively to small business investment companies that in turn lend to small businesses 
B) makes only working capital loans 
C) lends to businesses with reasonable prospects of repayment but which cannot obtain credit through private channels 
D) none of the above

Question 4

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) comaker loan 
D) warehouse loan

Question 5

An advantage of short-term borrowing is the need for frequent renewals.

Accepted Answer

A) True 
 B)False

Question 6

Factoring accounts receivable has all of the following characteristics except:

Accepted Answer

A) the borrower sells the receivable 
B) accounts receivable balances are removed from the balance sheet 
C) the customer payment is made to the factor 
D) all of the above are characteristics of pledging

Question 7

Compensating balances at a commercial bank are:

Accepted Answer

A) net differentials of balances with correspondent banks 
B) maintained by Federal Reserve for services rendered 
C) account balances required in connection with unsecured business loans under bank lines of credit 
D) required vault-held reserves as an alternative to reserves held by Federal Reserve Banks

Question 8

Short-term financing offers greater flexibility than long-term financing.

Accepted Answer

A) True 
 B)False

Question 9

A commercial finance company:

Accepted Answer

A) has a bank charter 
B) may not discount accounts receivable 
C) may make loans secured by chattel mortgages 
D) none of the above

Question 10

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 11

Which of the following is not a characteristic of a commercial finance company?

Accepted Answer

A) advances funds to business concerns by discounting accounts receivable 
B) makes loans secured by chattel mortgages on machinery 
C) finances deferred-payment sales of commercial and industrial equipment 
D) holds a bank charter

Question 12

Field warehouses are in operation throughout the United States but are concentrated in the central and East coast regions.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following operating characteristics affect a firm's short-term financing strategy?

Accepted Answer

A) industry and company factors 
B) seasonal variation 
C) sales trend 
D) cyclical variations 
E) all the above

Question 14

If total assets are $100,000,fixed assets are $30,000,current liabilities are $20,000,then net working capital is:

Accepted Answer

A) $100,000 
B) $70,000 
C) $50,000 
D) $0

Question 15

Service industries tend to have larger proportions of fixed assets to current assets.

Accepted Answer

A) True 
 B)False

Question 16

The choice of financing strategy involves a tradeoff between return and risk.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

An aggressive financing plan has a higher financing cost,but with lower risk of not being able to borrow when short-term funds are needed.

Accepted Answer

A) True 
 B)False

Question 19

Short-term financing may come in the form of trade credit extended between businesses.

Accepted Answer

A) True 
 B)False

Question 20

A short-term promissory note sold by high-credit-quality corporations and is backed solely by the credit quality of the issuer is called:

Accepted Answer

A) commercial paper 
B) a line of credit 
C) a revolving credit agreement 
D) a factoring arrangement

Exam 16: Short-Term Business Financing

Using the conservative approach for financing a firm's assets,long term financing would be used only to finance fixed assets,while short term financing would be used to finance current assets including seasonal fluctuations.

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

The Small Business Administration:

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) :

An advantage of short-term borrowing is the need for frequent renewals.

Factoring accounts receivable has all of the following characteristics except:

Compensating balances at a commercial bank are:

Short-term financing offers greater flexibility than long-term financing.

A commercial finance company:

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.

Which of the following is not a characteristic of a commercial finance company?

Field warehouses are in operation throughout the United States but are concentrated in the central and East coast regions.

Which of the following operating characteristics affect a firm's short-term financing strategy?

If total assets are $100,000,fixed assets are $30,000,current liabilities are $20,000,then net working capital is:

Service industries tend to have larger proportions of fixed assets to current assets.

The choice of financing strategy involves a tradeoff between return and risk.

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

An aggressive financing plan has a higher financing cost,but with lower risk of not being able to borrow when short-term funds are needed.

Short-term financing may come in the form of trade credit extended between businesses.

A short-term promissory note sold by high-credit-quality corporations and is backed solely by the credit quality of the issuer is called: