Question 1

All commercial paper involves the physical transfer of actual paper certificates.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is associated with the recession of 2007-2009?

Accepted Answer

A)   Hundreds of bank failures occurred.
B)   The Federal Reserve and the Federal Deposit Insurance Corporation forced large banks at risk of collapse to be taken over by healthy banks.
C)   Commercial banks and investment banks were allowed to merge.
D)   All of these options are correct.

Question 3

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Accepted Answer

A) True 
 B)False

Question 4

A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of the manufacturing firm?

Accepted Answer

A)   Decreased receivables
B)   Increased receivables
C)   Increased payables
D)   Decreased payables

Question 5

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 6

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 options are true.

Question 7

"Stretching the payment period" refers to the practice of trying to take a trade discount after the discount period.

Accepted Answer

A) True 
 B)False

Question 8

The required compensating balance is usually computed as a

Accepted Answer

A)   percentage of the customer's loans outstanding.
B)   factor of accounts receivable.
C)   percentage of the bank's commitments toward future loans to the customer.
D)   percentage of the customer's loans outstanding or percentage of the bank's commitments toward future loans to the customer.

Question 9

The Truth in Lending law is primarily designed to protect

Accepted Answer

A)   corporate borrowers.
B)   banks.
C)   consumers.
D)   investors in municipal bonds.

Question 10

Eurodollar loans are similar to U.S. bank loans in that they are usually short-term to intermediate-term in nature.

Accepted Answer

A) True 
 B)False

Question 11

The annual percentage rate (APR) is generally lower than the interest rate stated by the bank.

Accepted Answer

A) True 
 B)False

Question 12

Approximately 40% of all short-term financing is in the form of accounts payable or trade credit.

Accepted Answer

A) True 
 B)False

Question 13

Issuers of commercial paper can be divided into finance paper or direct paper, dealer paper, and asset-backed commercial paper.

Accepted Answer

A) True 
 B)False

Question 14

One major advantage of commercial paper is that it can always be "rolled over" (reissued) when it matures.

Accepted Answer

A) True 
 B)False

Question 15

Compensating balances represent unfair hidden costs of borrowing.

Accepted Answer

A) True 
 B)False

Question 16

The London Interbank Offered Rate (LIBOR) is used to set a base lending rate for some U.S. domestic corporate loans.

Accepted Answer

A) True 
 B)False

Question 17

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 18

A term loan is usually characterized by

Accepted Answer

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

Question 19

The most common form of short-term financing is a bank loan.

Accepted Answer

A) True 
 B)False

Question 20

Kantorovich Company normally takes 30 days to pay for its average daily credit purchases of $2,000. It has average daily sales of $3,000, and collects accounts in 25 days. What is its net credit position?

Accepted Answer

A)   $15,000
B)   $1,000
C)   ($1,000) 
D)   ($15,000)

Exam 8: Sources of Short-Term Financing

The annual percentage rate (APR) is generally lower than the interest rate stated by the bank.

Correct AnswerverifiedShow Answer

"Stretching the payment period" refers to the practice of trying to take a trade discount after the discount period.

Correct AnswerverifiedShow Answer

Which of the following is associated with the recession of 2007-2009?

Correct AnswerverifiedShow Answer

Compensating balances represent unfair hidden costs of borrowing.

Correct AnswerverifiedShow Answer

Eurodollar loans are similar to U.S. bank loans in that they are usually short-term to intermediate-term in nature.

Correct AnswerverifiedShow Answer

The London Interbank Offered Rate (LIBOR) is used to set a base lending rate for some U.S. domestic corporate loans.

Correct AnswerverifiedShow Answer

All commercial paper involves the physical transfer of actual paper certificates.

Correct AnswerverifiedShow Answer

The Truth in Lending law is primarily designed to protect

Correct AnswerverifiedShow Answer

The cost of NOT taking a discount is higher for terms of 2/10, net 60 than for 2/10, net 30.

Correct AnswerverifiedShow Answer

The most common form of short-term financing is a bank loan.

Correct AnswerverifiedShow Answer

Approximately 40% of all short-term financing is in the form of accounts payable or trade credit.

Correct AnswerverifiedShow Answer

Bank loans to business firms

Correct AnswerverifiedShow Answer

Kantorovich Company normally takes 30 days to pay for its average daily credit purchases of $2,000. It has average daily sales of $3,000, and collects accounts in 25 days. What is its net credit position?

Correct AnswerverifiedShow Answer

One major advantage of commercial paper is that it can always be "rolled over" (reissued) when it matures.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of the manufacturing firm?

Correct AnswerverifiedShow Answer

The required compensating balance is usually computed as a

Correct AnswerverifiedShow Answer

A trust receipt acknowledges that the lender trusts the borrower to repay the loan before any dividends are paid.

Correct AnswerverifiedShow Answer

A term loan is usually characterized by

Correct AnswerverifiedShow Answer

Issuers of commercial paper can be divided into finance paper or direct paper, dealer paper, and asset-backed commercial paper.

Correct AnswerverifiedShow Answer

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