Chapter 20: Short-Term Financial Planning

__________ involves the sale of accounts receivable.

Factoring

Temporary sources of financing are:

current liabilities that require the firm's discretion to establish

Commercial paper is short-term unsecured debt sold by large firms at a:

discount

Loans on which the interest is paid in advance are often called:

discount loans

The risk that a firm might not be able to refinance a debt with favorable terms at some point in the future is known as:

funding risk

An agreement between a commercial bank and a business specifying the amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time is known as a:

line of credit

The interest rate charged on a secured short-term loan to a corporation is typically __________ the interest rate on an unsecured loan.

lower than

Equipment break-down or the loss of a major customer can create the need for short-term financing in order to continue operations. These situations are known as:

negative cash flow shocks

Banks typically charge a fee to cover the cost of legal fees, clerical work, a credit check, and other loan requirements. This fee is known as a(n):

origination fee

The amount of working capital that remains invested in operations for the life of the business is known as:

permanent working capital

For many firms sales are concentrated during a few months of the year which creates a need for:

seasonal short-term financing

Collateral is required for a:

secured short-term loan

According to the matching principle a firm should match __________ funding needs with __________ sources of financing.

short-term, short-term

A firm may have to increase its investment in working capital during peak times. The amount of the increase is known as:

temporary working capital

Commercial paper is a form of:

unsecured short-term credit

When a firm uses a __________, the firm's inventory is used as collateral for the loan.

warehouse arrangement

Commercial paper is legally prohibited from having a maturity longer than:

270 days

Much of the commercial paper is issued by;

Commercial finance companies.

In addition to the prime rate, another common interest rate that is often used as a benchmark rate is:

LIBOR

__________ can create a need for financing to ramp up production or satisfy contract agreements for marketing or minor product changes.

Positive cash flow shocks

Managers that elect to finance all permanent working capital needs with short-term debt are using a(n):

aggressive financing policy

A line of credit is given by a:

bank to a firm to meet short-term cash needs

Much of the commercial paper is issued by:

commercial finance companies

Managers that elect to finance all fixed assets, permanent working capital needs, and some seasonal needs with long-term debt are using a(n):

conservative financing policy