Concept explainers
Bank loans, commercial paper, and medium-term notes* Complete the passage below by selecting the most appropriate terms from the following list:
floating lien, revolving credit, medium-term note, warehouse receipt, unsecured, commitment fee, commercial paper.
Companies with fluctuating needs for cash often arrange a _________ with their bank that allows them to borrow up to a specified amount. In addition to paying interest on any borrowings, the company must pay a _________ on any unused amount.
Secured short-term loans are sometimes covered by a _________, which gives it a general claim on the firm’s assets. Generally, however, the borrower pledges specific assets. For example, a loan may be secured by inventory. In this case, an independent warehouse company provides the bank with a _________, showing that the goods are held on the bank’s behalf and releases those goods only on instructions.
Banks are not the only source of short-term debt. Many large companies issue their own _________ debt directly to investors, often on a regular basis. If the maturity is less than 270 days, the debt does not need to be registered with the SEC and is known as _________. A company may also have a program to sell longer-maturity debt to investors on a continuing basis. This is called a _________ program.
Want to see the full answer?
Check out a sample textbook solutionChapter 24 Solutions
PRIN.OF CORPORATE FINANCE
- The interest rate that banks provide to the customers for the savings deposit account is more than current deposit account but less than: a. Overdraft account b. Savings deposit account c. Flexible account d. Fixed deposit accountarrow_forwardNote the following information. A line of credit is an agreement between a bank and a borrower by which the borrower can borrow any amount of money (up to a mutually agreed-upon maximum) at any time, simply by writing a check. Typically, monthly simple interest payments are required, and the borrower is free to make principal payments as frequently or infrequently as he or she wants. Usually, a line of credit is secured by the title to the borrower's house, and the interest paid to the bank by the borrower is deductible from the borrower's income taxes.James and Danna Wright did not have sufficient cash to pay their income taxes. However, they had previously set up a line of credit with their bank. On April 15, they wrote a check to the Internal Revenue Service on their line of credit for $10,352. The line's interest rate is 4.125%. (Round your answers to the nearest cent.) (a) Find the size of the required monthly interest payment.$ (b) The Wrights decided that it would be in their…arrow_forwardWhen a business borrows money from a bank on a non-interest-bearing note, how are the bank discount and proceeds calculated?arrow_forward
- Which of the following is money kept by the firm with a bank in low-interest or non-interest bearing accounts as part of the loan agreement? A - short-term financing B- secured loans C- compensating balance D- line of creditarrow_forward1. Rank the following types of bank liabilities, first according to their level of liquidity risk, and then according to their interest rate risk. Then rank them according to their current cost to the bank. Explain why the rankings vary. DDAs Interest-checking accounts MMDAs Small-time deposits Jumbo CDs Federal funds purchased Eurodollar liabilities Federal Home Loan Bank advancesarrow_forward1. A company makes a sale to a customer on credit and borrows cash (70-90% of the amount of sales) from a bank using receivables as security. When the company receives the customer payment, it sends this money to the lender. This transaction is an example of what? Factoring with recourse Securitization Collateralized borrowing Nonrecourse factoring 2. Which of the following statements about the direct and indirect methods for presenting Cash Flow Statement is NOT true? According to the indirect method, cash flows begin with net income or loss and is followed by subsequent additions to or deductions from that amount for non-cash revenue and expense items, resulting in cash flow from operating activities. The direct method is based on use of actual cash inflows and outflows from a company’s operations. Using direct and indirect methods leads to different amounts shown as cash flow from operations, investing, and financing activities.…arrow_forward
- Which one of the following is classified as a cash or cash equivalent? Select one: a. Prepaid insurance b. Restricted bank account that cannot be used for operations c. Bank overdraft d. Government debt investment with 30 days to maturity e. Post-dated chequearrow_forwardThe fee banks pay to the FDIC for deposit insurance is now: a fixed dollar amount for all banks. O a fixed percentage of the bank's deposit level for all banks. O a fixed percentage of the bank's loan volume for all banks. O based on the risk of the bank.arrow_forwardAn account issued by banks yielding a market rate of interest with a minimum balance requirement and a limit on transactions is a Select one: a. certificate of deposit. b. money market deposit account.arrow_forward
- Bank rates on credit card balances are usually similar to the rate charged on business loans. Group of answer choices: True Falsearrow_forwardShow how each of the following would initially affect a bank’s assets liabilities. Someone makes $1000 deposit into a checking account. A bank makes a loan of $1000 by establishing a checking account for $1000 The loan described in part (B) is spent. A bank must write off a loan because the borrower defaults.arrow_forwardWhich of the following is a form of financing consist of short term unsecured promissory note issued by firms with a high credit rating? a. Commercial Papers b. Treasury Bills c. Bankers’ Acceptance d. Bills of Exchangearrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,