Fin test 3

Which of the following is NOT evident during a credit crunch?

A decrease in interest rates occurs.

An aggressive working capital policy would have which of the following characteristics?

A high ratio of short-term debt to long-term sources of funds

Companies that are mostly influenced by seasonal sales have to make a choice between

All of the options

International cash management is more complex than domestic-based cash management because of

All of the options

RFID chips have been used to

All of the options

Yield curves change daily to reflect

All of the options

Which of the following is a reason for diminishing liquidity in modern corporations?

All of the options are reasons for diminishing liquidity.

One of the major cost savings for consumers using automated clearinghouses is

All of the options are true

A term loan is usually characterized by

All of these options

Accounts receivable may be used as a source of financing by

All of these options

Automated clearinghouses are commonly used by consumers to make direct payments for

All of these options

Bank loans to business firms

All of these options

The term structure of interest rates

All of these options

Variables important to credit scoring models include

All of these options

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

All of these options

The London Interbank Offered Rate (LIBOR)

All of these options are correct.

The use of cash budgeting procedures

All options are correct

Assuming that we can earn a 10% return on accounts receivable, which of the following strategies to finance an increase in our accounts receivable balance would be optimal?

An increase in bank loans that would cost us 8%

Which of the following securities represents an unsecured promissory note issued by a corporation?

Commercial paper

Which of the following is not a true statement about automated clearinghouses (ACHs)?

Debits drawn on automated clearinghouses cost less than half that of checks processed through financial institutions.

Assuming level production throughout the year, and assuming receivables are collected in two equal installments over the two months subsequent to the sales period, developing the related areas of the cash budget requires which of the following steps?

Estimate monthly net cash flow and bank borrowing or repayments.

Which of the following is not a method of speeding up collections?

Extended disbursement float

Ideally, which of the following type of assets should be financed with long-term financing?

Fixed assets and permanent current assets

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 its customers?

Increased payables and decreased bank loans

Which of the following is generally considered to be the least liquid of current assets?

Inventory

A Just-In-Time (JIT) inventory management program has all but which of the following requirements?

Large safety stocks

When developing a credit scoring report, many variables would be considered. Which of the following best represents the major factors Dun & Bradstreet would examine?

The financial statements, satisfactory or slow payment experiences, and negative public records (suits, liens, judgments, and bankruptcies).

Which of the following is not a valid reason for holding cash?

To earn the highest return possible

Generally, the safest and most marketable instrument for short-term investment is

Treasury bills

Which of the following securities typically trades on a discount basis?

Treasury bills

The key to current asset planning is the ability of management to forecast sales accurately and then match production schedules with the sales forecast.

True

Which of the following yield curves would be characteristic during a period of high economic growth?

Upward sloping

Hedging refers to

a transaction that reduces risk exposure

Cost savings from JIT inventory management include(s)

all of the options

the concept of a self-liquidating asset implies that

all the product will be sold, receivables collected, and bills paid over the time period specified.

LIBOR is

an interest rate paid on Eurodollar loans in the London market.

Eurodollar certificates of deposit

are used by banks to loan out funds to anyone seeking U.S. dollars.

If a firm uses level production with seasonal sales

as sales decline inventory will increase.

An aggressive, risk-oriented firm will likely

borrow short-term and carry low levels of liquidity.

Multinational firms have found that they can lower borrowing costs

by borrowing Eurodollars at a lower rate than the U.S. prime rate and by borrowing foreign currencies through foreign subsidiaries at rates lower than the U.S. prime rate and then converting these foreign loans into dollars.

The term structure of interest rates

changes daily to reflect current competitive conditions in the money and capital markets.

The most subjective and also significant segment of the 5 Cs of credit for giving final approval is

character.

General Rent-All's officers arrange a $50,000 loan. The company is required to maintain a minimum checking account balance of 10% of the outstanding loan. This practice is called

compensating balance.

The Truth in Lending law is primarily designed to protect

consumers

When using the economic order quantity model

costs are minimized when total carrying costs and total ordering costs are equal.

Working capital management is primarily concerned with the management and financing of

current assets.

Retail companies like Target and Limited Brands are more likely to have

cyclical sales and more volatile earnings per share

For a given firm, holding other factors constant, ordering costs per unit generally

decline as average inventory increases

Commercial paper that is sold without going through a broker or dealer is known as

direct paper.

Money market funds

earn competitive market rates of return.

The theory of the term structure of interest rates, which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding, is the

expectations hypothesis

Which of the following is NOT a method for lenders to control pledged inventory

factoring

Firms with predictable cash-flow patterns should assume relatively low levels of risk.

false

The successful financial manager is very interested in the term structure of interest rates but is not concerned with the relative volatility or historical level of interest rates.

false

When the term structure of interest rates is downward sloping and interest rates are expected to decline, the

financial manager generally borrows short-term

The difference between the amount of cash on the firm's books and the amount credited to it by its bank is

float

Which of the following is not a factor influencing the selection of a marketable security?

float

Level production offers all of the following benefits except

greater storage space.

Firms exposed to the risk of interest rate changes may reduce that risk by

hedging in the commodities market

Which of the following is NOT a characteristic of commercial paper?

it has a one- to two-year maturity.

Well-implemented Web-based supply chain management has all of the following benefits except

it reduces the number of suppliers bidding for a company's business

"Float" takes place because

lag exists between writing a check and clearing it through the banking system

A firm that wishes to minimize risk when investing idle cash would be least likely to buy

long-term corporate bonds.

One advantage of level production is that

manpower and equipment are used efficiently at lower cost.

Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the

market segmentation theory.

Large firms tend to be

net suppliers of trade credit.

Financial managers can accurately predict future interest rates by

none of the options

The inventory decision model provides which type of information?

optimal order size

The required compensating balance is usually computed as a

percentage of the customer's loans outstanding or percentage of the bank's commitments toward future loans to the customer.

All of the following are benefits of just-in-time inventory ordering systems except that JIT

prevents stock outs

Pressure to increase current asset buildup often results from

rapidly expanding sales

If a firm has invested in corporate bonds, it may engage in a financial futures contract in order to protect itself from

rising interest rates.

Retail companies like Target and Limited Brands exhibit sales patterns that are most typically influenced by

seasonality.

Permanent current assets are not a factor in a manager's decision-making process when all current assets will be

self-liquidating

All of the following are examples of carrying costs except

shipping costs

The corporate sweep account is an account

that allows companies to maintain zero balances in their checking accounts, with their excess cash moved into an interest-earning account and lets companies write checks on zero balance accounts with the understanding that when the check is presented for payment, money will be moved from the interest-bearing account to the appropriate payment account.

The three primary policy variables to consider when extending credit include all of the following except

the level of inflation

Characteristics of a money market mutual fund include

the purchase of shares by investors, the proceeds of which are reinvested into liquid short-term securities.

A firm will usually increase the ratio of short-term debt to long-term debt when

the term structure is inverted and expected to shift down.

What is generally the largest source of short-term credit for small firms?

trade credit

A conservatively financed firm would

use long-term financing for permanent current assets, fixed assets, and a portion of the short-term fluctuating assets, and use short-term financing for all other short-term assets.

When the yield curve is downward sloping, generally a financial manager should

utilize short-term financing

A financial executive devotes the most time to

working capital management.