Question 1

Where a company wants to guarantee all of its issue of commercial paper,it can arrange for it to be:

Accepted Answer

A)   sold by tender.
B)   underwritten.
C)   sold by tap.
D)   sold with a face value less than $10 000.

Question 2

A major advantage of bill financing over other forms of short-term debt such as overdrafts is that the cost is usually lower.

Accepted Answer

A) True 
 B)False

Question 3

Commercial paper is usually issued in multiples of:

Accepted Answer

A)   $1000 or more
B)   $10 000 or more
C)   $100 000 or more
D)   $1 000 000 or more

Question 4

The basic feature of a/an ________ required by some banks is that it effectively raises the interest cost to the borrower for an overdraft facility.

Accepted Answer

A)   operating change restriction
B)   compensating balance
C)   commitment fee
D)   annual cleanup

Question 5

The market for bank-accepted bills is an illiquid one as banks tend to hold them until maturity.

Accepted Answer

A) True 
 B)False

Question 6

In relation to a bank bill,endorsement means:

Accepted Answer

A)   that the acceptor and endorser make an agreement as to who is liable for the repayment of the face value to the final holder of the bill.
B)   if the acceptor cannot repay the face value to the holder at maturity, it must draw a bill to meet its obligations.
C)   the endorser has a contingent liability when the bill matures.
D)   the drawer agrees to pay an additional fee to the acceptor for guaranteeing the repayment.

Question 7

The major banks lend unsecured short-term funds in the following basic ways:

Accepted Answer

A)   overdraft, bill financing and commercial paper.
B)   overdraft and bill financing.
C)   overdraft and commercial paper.
D)   commercial paper, negotiable certificates of deposit and overdraft.

Question 8

Which of the following about a P-note issue program is incorrect?

Accepted Answer

A)   A P-note issue program is a rollover facility whereby as P-notes mature, new notes are issued and discounted.
B)   A P-note program generally will have a lead manager.
C)   When members of the dealer panel bid for the paper, bids are generally quoted to a margin over a specified benchmark.
D)   The typical P-note issue program is a revolving facility with the dealer having the right to cancel, subject to providing the issuer with the required notice.

Question 9

When underwriting a commercial paper issue,an investment bank's fee will usually be:

Accepted Answer

A)   10% per annum.
B)   1% per annum.
C)   0.1% per annum.
D)   0.01% per annum.

Question 10

The benchmark or prime rate of interest for overdrafts varies directly with:

Accepted Answer

A)   demand for funds in the bond markets.
B)   varying demand and supply for funds in the short-term markets.
C)   varying demand and supply for funds in the long-term markets.
D)   changing asset prices.

Question 11

When a party endorses a bank bill,it:

Accepted Answer

A)   repays the face value of the bill to the holder at maturity.
B)   creates a liability for payment of the bill.
C)   provides the funds to the seller.
D)   provides the funds to the discounter of the bill.

Question 12

A bank that provides an overdraft facility to business customers expects the overdraft to have a fluctuating balance and doesn't require the customer to have the account in credit at any stage.

Accepted Answer

A) True 
 B)False

Question 13

Negotiable certificates of deposit are short-term securities issued by banks.Discuss their uses.

Accepted Answer

Banks can issue short-term negotiable ce...

Question 14

Under a non-recourse arrangement the factoring company has:

Accepted Answer

A)   a claim against the vendor.
B)   no claim against the seller of the accounts.
C)   a claim against the seller's bank.
D)   a claim against the vendor's other assets.

Question 15

Which of the following statements is NOT a feature of promissory notes?

Accepted Answer

A)   They are issued at discount to face value.
B)   A typical P-note facility issue program is a revolving facility.
C)   A company may pay an additional fee to the underwriter for endorsing the issue as well.
D)   Only the largest and most creditworthy corporations issue P-notes.

Question 16

________ is a short-term,unsecured discount note issued by corporate borrowers of high credit standing.The major banks generally issue these notes on their behalf.

Accepted Answer

A)   A line of credit
B)   Commercial paper
C)   A revolving line of credit
D)   A fully drawn advance

Question 17

Which of the following statements about promissory notes is incorrect?

Accepted Answer

A)   Promissory notes are discount securities.
B)   P-notes are issued by corporations in all the major international financial markets.
C)   P-notes have no acceptor, only an endorser.
D)   P-notes are usually issued as unsecured instruments.

Question 18

The term 'discount security' in relation to a bank bill means:

Accepted Answer

A)   when the bank bill is issued, it is less than the principal amount to be repaid at maturity.
B)   the interest on a bank bill is less than other money market securities.
C)   when the principal is repaid to the lender, they receive less than other money market securities.
D)   the bank bill only pays interest annually, unlike other securities that pay semi-annually.

Question 19

A company is likely to issue a bank bill if it wants:

Accepted Answer

A)   long-term financing.
B)   to spread its interest payments over the medium term.
C)   short-term financing.
D)   to invest medium-term funds.

Question 20

One of the advantages of an overdraft facility,from the viewpoint of a borrower,is it can be used to smooth out any seasonal mismatch between its cash inflows and outflows.

Accepted Answer

A) True 
 B)False

Exam 9: Short-Term Debt

________ is a short-term,unsecured discount note issued by corporate borrowers of high credit standing.The major banks generally issue these notes on their behalf.

Correct AnswerverifiedShow Answer

One of the advantages of an overdraft facility,from the viewpoint of a borrower,is it can be used to smooth out any seasonal mismatch between its cash inflows and outflows.

Correct AnswerverifiedShow Answer

The major banks lend unsecured short-term funds in the following basic ways:

Correct AnswerverifiedShow Answer

When a party endorses a bank bill,it:

Correct AnswerverifiedShow Answer

Where a company wants to guarantee all of its issue of commercial paper,it can arrange for it to be:

Correct AnswerverifiedShow Answer

Which of the following about a P-note issue program is incorrect?

Correct AnswerverifiedShow Answer

The market for bank-accepted bills is an illiquid one as banks tend to hold them until maturity.

Correct AnswerverifiedShow Answer

The benchmark or prime rate of interest for overdrafts varies directly with:

Correct AnswerverifiedShow Answer

Which of the following statements about promissory notes is incorrect?

Correct AnswerverifiedShow Answer

In relation to a bank bill,endorsement means:

Correct AnswerverifiedShow Answer

Which of the following statements is NOT a feature of promissory notes?

Correct AnswerverifiedShow Answer

When underwriting a commercial paper issue,an investment bank's fee will usually be:

Correct AnswerverifiedShow Answer

Under a non-recourse arrangement the factoring company has:

Correct AnswerverifiedShow Answer

The basic feature of a/an ________ required by some banks is that it effectively raises the interest cost to the borrower for an overdraft facility.

Correct AnswerverifiedShow Answer

A bank that provides an overdraft facility to business customers expects the overdraft to have a fluctuating balance and doesn't require the customer to have the account in credit at any stage.

Correct AnswerverifiedShow Answer

The term 'discount security' in relation to a bank bill means:

Correct AnswerverifiedShow Answer

Commercial paper is usually issued in multiples of:

Correct AnswerverifiedShow Answer

Negotiable certificates of deposit are short-term securities issued by banks.Discuss their uses.

Correct AnswerverifiedBanks can issue short-term negotiable ce...View AnswerShow Answer

A company is likely to issue a bank bill if it wants:

Correct AnswerverifiedShow Answer

A major advantage of bill financing over other forms of short-term debt such as overdrafts is that the cost is usually lower.

Correct AnswerverifiedShow Answer

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Banks can issue short-term negotiable ce...
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