Question 1

What is the most important overall source of short-term business financing both in the U.S.and worldwide?

Accepted Answer

A)  lines of credit
B)  trade credit
C)  notes
D)  commercial paper

Question 2

2/10 net 30 EOM translates as

Accepted Answer

A)  a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due in 30 days.
B)  a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due 30 days after the middle of the month.
C)  a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due 30 days after the end of the month.
D)  a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due in 20 days.
E)  none of the above

Question 3

The aggressive 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 4

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)  usually greater than the cost of factoring receivables
C)  excessive and to be avoided if at all possible
D)  the lowest of any form of short-term financing

Question 5

Compensating balances decrease the effective cost of borrowing.

Accepted Answer

A) True 
 B)False

Question 6

Manufacturing companies tend to be the largest users of accounts receivable financing.

Accepted Answer

A) True 
 B)False

Question 7

When accounts receivable are pledged: money is advanced to the borrower as a loan against accounts receivable;accounts receivable balances remain on the balance sheet;the customer payment is made to the firm,which then submits the payment to the bank;and interest is charged on the loan.

Accepted Answer

A) True 
 B)False

Question 8

The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.

Accepted Answer

A)  premium rate
B)  commercial paper rate
C)  federal funds rate
D)  treasury bill rate
E)  none of the above

Question 9

A line of credit is also often referred to as a revolving credit agreement.

Accepted Answer

A) True 
 B)False

Question 10

An owner of a business may not assign life insurance as collateral for a short-term loan.

Accepted Answer

A) True 
 B)False

Question 11

The prime rate offered by commercial banks is their _____________ rate to their ______________ quality business customers.

Accepted Answer

A)  highest,highest
B)  lowest,lowest
C)  lowest,highest
D)  highest,lowest

Question 12

Commercial paper issued by large U.S.corporations is backed by:

Accepted Answer

A)  accounts receivable
B)  inventories
C)  credit quality of the issuer
D)  fixed assets

Question 13

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.
E)  none of the above

Question 14

Short-term financing sources include bank loans,trade credit,and commercial paper.

Accepted Answer

A) True 
 B)False

Question 15

Trade credit is the single most important form of short-term business financing.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not an important source of short-term funds to small businesses?

Accepted Answer

A)  commercial banks
B)  commercial paper
C)  accounts receivable secured loans and/or use of factors
D)  the Small Business Administration

Question 17

Which of the following organizations are involved in accounts receivable financing for businesses?

Accepted Answer

A)  consumer finance companies
B)  commercial finance companies
C)  factors
D)  commercial finance companies and factors

Question 18

The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.

Accepted Answer

A)  prime rate
B)  commercial paper rate
C)  federal funds rate
D)  treasury bill rate
E)  none of the above

Question 19

A factor engages in accounts receivable financing for business by taking accounts receivable as collateral for making short-term loans.

Accepted Answer

A) True 
 B)False

Question 20

2/10 net 30 MOM translates as

Accepted Answer

A)  a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due in 30 days.
B)  a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due 30 days after the middle of the month.
C)  a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due 30 days after the end of the month.
D)  a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due in 20 days.
E)  none of the above

Exam 16: Short-Term Business Financing

A factor engages in accounts receivable financing for business by taking accounts receivable as collateral for making short-term loans.

Correct AnswerverifiedShow Answer

Manufacturing companies tend to be the largest users of accounts receivable financing.

Correct AnswerverifiedShow Answer

Commercial paper issued by large U.S.corporations is backed by:

Correct AnswerverifiedShow Answer

Trade credit is the single most important form of short-term business financing.

Correct AnswerverifiedShow Answer

In general,

Correct AnswerverifiedShow Answer

When accounts receivable are pledged: money is advanced to the borrower as a loan against accounts receivable;accounts receivable balances remain on the balance sheet;the customer payment is made to the firm,which then submits the payment to the bank;and interest is charged on the loan.

Correct AnswerverifiedShow Answer

The prime rate offered by commercial banks is their _____________ rate to their ______________ quality business customers.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.

Correct AnswerverifiedShow Answer

Which of the following organizations are involved in accounts receivable financing for businesses?

Correct AnswerverifiedShow Answer

2/10 net 30 EOM translates as

Correct AnswerverifiedShow Answer

Compensating balances decrease the effective cost of borrowing.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not an important source of short-term funds to small businesses?

Correct AnswerverifiedShow Answer

An owner of a business may not assign life insurance as collateral for a short-term loan.

Correct AnswerverifiedShow Answer

The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.

Correct AnswerverifiedShow Answer

A line of credit is also often referred to as a revolving credit agreement.

Correct AnswerverifiedShow Answer

What is the most important overall source of short-term business financing both in the U.S.and worldwide?

Correct AnswerverifiedShow Answer

Short-term financing sources include bank loans,trade credit,and commercial paper.

Correct AnswerverifiedShow Answer

2/10 net 30 MOM translates as

Correct AnswerverifiedShow Answer

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The prime rate offered by commercial banks is their _ rate to their __ quality business customers.

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