Chapter 8 Smartbook -- Finance

spontaneous source of funds current liability

Select all that apply Accounts payable is considered a Multiple select question. spontaneous source of funds current liability long term liability

payment of accrued interest & part principal. a series of equal payments.

Select all that apply An installment loan usually requires Multiple select question. payment of accrued interest & part principal. equal payment of principal and interest. interest only payments. a series of equal payments.

funds loans

Select all that apply Commercial banks use money from their customers' checking accounts to offer Blank______ that provide short-term financial capital to businesses, and to finance consumer purchases of durable goods such as automobiles. Multiple select question. funds stocks loans savings bonds

loans funds

Select all that apply Commercial banks use money from their customers' checking accounts to offer Blank______ that provide short-term financial capital to businesses, and to finance consumer purchases of durable goods such as automobiles. Multiple select question. stocks loans funds savings bonds

Consumers stopped purchasing. Companies went bankrupt. People lost their jobs.

Select all that apply How did the credit crunch in 2007 and 2008 lead to the near collapse of the economy? Multiple select question. Consumers stopped purchasing. Companies went bankrupt. People lost their jobs. Borrowing and lending increased. Banks and S&Ls failed.

True

True or false: Because there are so many ways to structure loan repayment schedules, no one formula is applicable for computing the APR.

False

True or false: Commercial paper represents a long-term, secured promissory note issued to the public in minimum units of $25,000.

Collect interest

What is the lender's main goal when making a loan? Multiple choice question. Collect interest Repossess the assets Resell the collateral

False

When a firm has a high credit rating, the lender will usually require collateral to secure the loan. True false question.

mortgages

When asset-backed commercial paper was first established, the underlying assets were primarily Blank______ and various types of consumer loans and receivables. Multiple choice question. derivatives automobiles mortgages

The economy nearly collapsed.

When lending slowed in response to the credit crunch of 2007 and 2008, what happened to the economy? Multiple choice question. The economy became more flexible. The economy nearly collapsed. The economy became smaller and more efficient. The economy grew and strengthened.

net provider

A company that has a positive net credit position is considered a Blank______ of trade credit. Multiple choice question. net provider net creator net user

large

Commercial paper are issued by Blank______ corporations. Multiple choice question. small private large

increase in interest rates tightening of money supply growth

Credit crunch are the result of the following: Multiple select question. increase in interest rates tightening of money supply growth decrease in interest rates existence of speculative excesses

reduce a prior risk exposure.

Hedging is used to Multiple choice question. reduce a prior risk exposure. increase a prior risk exposure. make money by speculation.

increase

If a company can increase the payment period to a vendor its cash flow will Blank______. Multiple choice question. decrease remain the same increase

sold to

In contrast to pledging accounts receivables, when factoring is used, the accounts receivables are Blank______ to the non-bank company providing the financing. Multiple choice question. forgiven by sold to loaned to

with a track record of sales and profits

Installment loans can be obtained by a venture Blank______. Multiple choice question. with a track record of sales and profits that uses funds only from family and friends that is funded solely by crowd funding with a strong creditworthy partner such as the government

Jones is factoring receivables.

Jones Company accepts credit cards resulting in outright sale of receivables to credit card company. Which of the following is true regarding this arrangement? Multiple choice question. Jones is pledging receivables. Jones is liable if customer does not pay. Jones is factoring receivables.

Currency risk

Jones Corporation is considering borrowing money in a foreign country denominated in the foreign currency and converting it to US funds for use in the USA. What should Jones Co. consider before doing this? Multiple choice question. Currency risk Market risk Interest rate risk

Work in process

Of the following, which one would have the lowest collateral value to a bank or lender? Multiple choice question. Finished goods Work in process Raw materials

possibility of default potential for a liquidity freeze

Select all that apply The risks of commercial paper include: Multiple select question. possibility of default increase in loyalty potential for a liquidity freeze

at least $25,000 short term unsecured

Select all that apply What are some characteristics of commercial paper? Multiple select question. at least $25,000 secured short term unsecured long term

False

Selling a Treasury bond futures contract will result in a profit if interest rates go down. True false question.

Individual borrowers

The 1968 Truth in Lending Act was intended to protect: Multiple choice question. Individual borrowers Banks Business borrowers

Investor paper

Which one of these is NOT a category of commercial paper? Multiple choice question. Dealer paper Investor paper Asset-backed paper Finance/Direct paper

loan payable

A company that secures a loan from a financial institution by pledging accounts receivable balances as collateral will recognize a Blank______ Blank______ in the financial statements. Multiple choice question. loan payable note receivable accumulated other comprehensive income deferred revenue

minimum balance

A compensating balance requirement is similar to a Blank______ requirement. Multiple choice question. maximum balance minimum collateral minimum balance

Blank 1: with Blank 2: without

Accounts receivable sold with the risk of nonpayment by customers assumed by the transferor of the receivables is a sale _______ recourse; whereas, receivables sold with the risk of nonpayment assumed by the transferee is a sale ________ recourse.

disclosed

Agreements to maintain compensating balances should be Blank______ in the financial statements. Multiple choice question. recorded disclosed adjusted

more than 6%

An individual borrows $1,000 from the bank for one year from the bank. The loan requires equal monthly payments. The loan officer states the total interest will be $60. The effective rate on the loan will be Multiple choice question. less than 6% 6% more than 6%

floor planning

Another name for trust receipt financing is Multiple choice question. blanket lien warehousing floor planning

secured borrowing.

Assigning or pledging accounts receivable is used in a Multiple choice question. contra liability. note receivable. loan impairment. secured borrowing.

loans, funds, or funding

Commercial bank _______ provide short-term financial capital to businesses, and the financing of consumer purchases such as durable goods.

money markets

Commercial paper is traded in the Blank______. Multiple choice question. stock market CDS market money markets

Blank 1: Prime Blank 2: Interest Blank 3: Rate

Commercial paper may be issued at below the______ ______ _______.

sells

Factoring is an arrangement where a firm Blank______ its receivables. Multiple choice question. reduces sells buys donates

True

Firms that have difficulty obtaining funds will often be required to use collateral to back their loan. True false question.

False

Goods in process used as collateral typically qualify a firm for a higher loan than raw material or finished goods. True false question.

$15,000

Jones company is considering changing its credit term from 30 days to 45 days. If daily credit sales are $3,000 and the balance in accounts payable is $120,000, then as a result of this change, the company's net trade credit position will become: Multiple choice question. -$45,000 $45,000 -$15,000 $15,000

The transferor seems less leveraged The transferor seems more profitable The transferor seems more liquid

Select all that apply Which of the following are reasons why a transferor prefers the sale approach over the secured borrowing approach of transferring receivables? (Select all that apply.) Multiple select question. The transferor seems less leveraged The transferor seems more profitable The transferor seems more leveraged The transferor seems more liquid

consumer loans

The Truth in Lending Act applies to Blank______. Multiple choice question. business loans consumer & business loans consumer loans

warehousing

The arrangement where goods can only be moved with permission of the lender is called Multiple choice question. blanket lien trust receipt warehousing

True

The method of controlling pledged inventory in which the lender has a general claim on the borrower's inventory is called a blanket inventory lien. True false question.

the prime rate.

The rate a bank charges to its most creditworthy customers is Multiple choice question. the prime rate. the LIBOR rate. the pound rate.

net credit position

The relationship between accounts receivable and accounts payable is called current ratio net credit position working capital

factoring

The sale of accounts receivables to obtain short-term financing is referred to as Blank______ receivables. Multiple choice question. pledging trading discounting factoring

the payment period

The time between the sale and the due date of payment is called: Multiple choice question. the sale period the discount period the payment period

Have denominations in multiples of $100,000.

"Commercial Paper" is a term used to describe short-term unsecured debt issued by large corporations. Which of the following statements is accurate when discussing the term commercial paper? Multiple choice question. Have denominations in multiples of $100,000. Considered to be a highly risky asset, given that a firm's condition presumably can cannot be monitored and predicted. Referred to as "ETF". Are not backed by a bank line of credit.

secured assets. collateral.

Select all that apply The assets pledged to secure a loan are called Multiple select question. secured assets. unsecured assets. collateral.

they are cheaper over many months or years when an extended payment period is needed. their interest rates are often lower than credit card rates.

Select all that apply Installment loans are a cheaper alternative to credit cards because: Multiple select question. installment loans are open-ended, meaning there is no due date. they are cheaper over many months or years when an extended payment period is needed. they often carry no interest rate. their interest rates are often lower than credit card rates.

Jones is pledging the receivables Jones still owns the receivables Jones is probably liable if the customer does not pay

Select all that apply Jones Company borrows from the bank, using the accounts receivable as security. Which of the following are true of this situation? Multiple select question. Jones is pledging the receivables Jones still owns the receivables Jones is factoring the receivables Jones is probably liable if the customer does not pay

disclosure of the effective rate use of the actuarial method to calculate interest

Select all that apply The Truth in Lending act requires Multiple select question. a minimum interest rate disclosure of the effective rate a limit on the interest rate use of the actuarial method to calculate interest

Lender has lien on inventory obtained after loan is made. Specific inventory items are not identified. Lender has lien on all inventory.

Select all that apply Which of the following is true regarding blanket inventory liens? Multiple select question. Lender does not have lien on inventory obtained after loan is made. Lender has lien on inventory obtained after loan is made. Specific inventory items are not identified. Lender has lien on all inventory.

Lender has lien on all inventory. Lender has lien on inventory obtained after loan is made. Specific inventory items are not identified.

Select all that apply Which of the following is true regarding blanket inventory liens? Multiple select question. Lender has lien on all inventory. Lender does not have lien on inventory obtained after loan is made. Lender has lien on inventory obtained after loan is made. Specific inventory items are not identified.

1-2 percentage points

The average customer can expect to pay how many points above the prime rate? Multiple choice question. 8-10 percentage points 5 percentage points 1-2 percentage points

tighten the money supply.

To combat inflation, the Federal Reserve sometimes will Multiple choice question. increase the money supply. loosen the money supply. tighten the money supply.