Chapter 16: Short Term Business Financing
Multiple Choice
1. The working capital is also the firm’s __________ assets.
a. future
b. long term
c. short term
d. current
Answer: d
Level: easy
Section: Strategies for Financing Working Capital
2. Which of the following is not a current asset account?
a. cash
b. marketable securities
c. accounts payable
d. accounts receivable
Answer: c
Level: easy
Section: Strategies for Financing Working Capital
3. The ________________ is a financing strategy that attempts to match the maturities of assets
with the maturities of the liabilities.
a. permanent matching approach
b. cumulative matching approach
c. naïve matching approach
d. maturity matching approach
Answer: d
Level: medium
Section: Strategies for Financing Working Capital
4. One problem with an aggressive approach to financing current assets is that the firm may
a. incur too much long-term debt.
b. not be able to get debt financing.
c. incur liquidity problems.
d. have excess liquidity.
Answer: c
Level: medium
Section: Strategies for Financing Working Capital
5. How does the firm’s sales trend affect the financing mix?
a. As sales grow, the fixed assets and current assets decline.
b. As sales grow, the fixed assets and current assets grow.
c. As sales decline, the fixed assets and current assets grow.
d. As sales decline, the fixed assets and current assets decline.
Answer: b
Level: easy
Section: Factors Affecting Short Term Financing
6. What happens when a small business is too risky to obtain a bank loan? It can
a. obtain trade credit.
b. get a financial market loan.
c. reapply at the same bank or financial institution that turned the business down.
d. It can apply for a government loan guarantee through the U.S. Small Business
Administration.
Answer: d
Level: medium
Section: Providers of Short Term Financing
7. What is a line of credit?
a. a loan limit established by the consumer to pay back a loan
b. a loan limit established by a bank for each business customer
c. a loan limit established by a bank for each student loan.
d. a loan limit established by a bank for each consumer
Answer: b
Level: medium
Section: Commercial Bank Lending
8. The role of the Small Business Administration is to
a. subsidize large investment projects that the private sector will not finance.
b. make direct loans to small businesses that may not be able to get financing from
commercial banks or venture capitalists.
c. guarantee loans to businesses that might otherwise have difficulty in obtaining loans
from traditional bank sources.
d. help small businesses to get started in order to boost economic development.
Answer: c
Level: medium
Section: Small Business Administration
9. What is the single most important form of short term business financing?
a. credit extended from a thrift institution to a consumer
b. credit extended from a bank to a consumer
c. credit extended from one business organization to another
d. credit extended from a bank to a business
Answer: c
Level: difficult
Section: Trade Credit from Suppliers
10. The JOBS Act of 2012 allows firms with under $1 billion in sales to more easily participate
in
a. Small Business Administrative loans.
b. labor markets.
c. Dutch auctions.
d. crowdfunding.
Answer: d
Level: difficult
Section: Additional Varieties of Short Term Financing
11. An organization that does not have a bank charter that advanced funds to businesses is
known as a _____________________________.
a. savings and loan association.
b. thrift institution.
c. bank holding company.
d. commercial finance company.
Answer: d
Level: easy
Section: Commercial Finance Companies
12. What is commercial paper?
a. a long term promissory note
b. a short term promissory note
c. a long term secured loan
d. a short term secured loan
Answer: b
Level: easy
Section: Commercial Paper
13. What happened to the commercial paper market as a result of the Economic Crisis in 2008?
a. Investors switched to other types of unsecured debt.
b. Investors switched to other types of commercial paper.
c. Investors switched to treasury securities.
d. Investors stopped borrowing funds.
Answer: c
Level: difficult
Section: Commercial Paper
14. What does pledging collateral mean?
a. A firm lends the accounts receivable to a bank.
b. A firm lends from their accounts payable.
c. A firm borrows against accounts payable.
d. A firm borrows against accounts receivable.
Answer: d
Level: difficult
Section: Additional Varieties of Short Term Financing
15. Secured lending is also called
a. long term lending.
b. asset based lending.
c. medium term lending.
d. definite term lending.
Answer: b
Level: easy
Section: Additional Varieties of Short Term Financing