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.
