Tag: short term sources of finance

Questions Related to short term sources of finance

The size of money that can be raised through commercial paper is ________ to the excess liquidity available with the suppliers of funds at a particular time.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. limited

  2. unlimited

  3. equal

  4. higher

Show answer
Correct Option: A
Explanation:

Commercial paper is an unsecured promissory note given by a firm to raise finances for a short period of time. 

The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time.

The articles of association contains the _________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. rules

  2. regulations

  3. by-laws

  4. all of the above

Show answer
Correct Option: D
Explanation:
Articles of Association are the rules regarding internal management of a company.These rules are subsidiary to the Memorandum of Association and hence, should not contradict or exceed anything stated in the Memorandum of Association. The Article of Association contains rules, regulations, by-laws, etc.

A commercial paper provides a __________ source of funds.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Smaller

  2. Continuous

  3. Larger

  4. None of the above

Show answer
Correct Option: B
Explanation:
A commercial paper provides a continuous source of funds. This is because their maturity can be tailored to suit the requirements of the issuing firm. Further, maturing commercial paper can be repaid by selling new commercial paper.

Which of the following is a limitation of commercial paper?

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. The size of money that can be raised through commercial paper is limited to the excess liquidity available with suppliers of funds at a particular time.

  2. A commercial paper is sold on an unsecured basis,

  3. As it is freely transferable instrument, it has high liquidity.

  4. It provides more funds compared to other sources.

Show answer
Correct Option: A
Explanation:

Commercial paper is an unsecured promissory note given by a firm to raise finances for a short period of time. Only financially sound and highly rated firms can raise money through commercial papers. 

The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time.

The cost of commercial paper to the issuing firm is ________ than the cost of commercial bank loans.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. lower

  2. higher

  3. equal

  4. none of the above

Show answer
Correct Option: A
Explanation:

Commercial Paper is issued by one firm to another business firm, Insurance company, pension funds and it is an impersonal method of raising finances. therefore the cost of commercial paper to the issuing firm is lower than the cost of commercial bank loans.

Commercial paper is an __________ method of financing.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. personal

  2. impersonal

  3. nominal

  4. real

Show answer
Correct Option: B
Explanation:

Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period. It is issued by one firm to another business firm, insurance companies, pension funds, and banks. Hence, Commercial Paper is an impersonal method of financing.

Commercial papers represent a new financial instrument issued for the purpose of _______________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Project financing

  2. Working capital

  3. Leasing of plant and equipment

  4. Import of capital goods

Show answer
Correct Option: B
Explanation:

Commercial papers are short-term debt, unsecured instrument which is issued by the companies to meet their short term obligations that is to meet their working capital requirements. They are usually issued for 15 days to 1 year.

Identify the merit(s) of Trade credit.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. It reduces the capital requirement.

  2. It helps the business focus on core activities.

  3. It does not require any negotiation or formal agreement.

  4. All of the above

Show answer
Correct Option: D
Explanation:

Trade credit can be defined as delay of payment permitted by the creditor or supplier of raw materials, consumables etc. against the goods purchased from him. Merits of Trade credit are:a) It reduces the capital requirement.b) It helps the business focus on core activities.

c) It does not require any negotiation or formal agreement.

Likely disadvantage(s) of using trade credit include ___________.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Loss of goodwill

  2. Higher prices of raw materials

  3. The opportunity cost of discount

  4. All of the above

Show answer
Correct Option: D
Explanation:
Trade credit is issued when goods and services are traded on credit. It is offered by one seller to the other.Disadvantage(s) of using trade credit include:a) loss of goodwill
b) higher prices of raw materials
c) the opportunity cost of discount.

Trade Credit is a major source of _____ finance for most business whether small or big.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Receivables

  2. Fixed capital

  3. Working capital

  4. None of the above

Show answer
Correct Option: C
Explanation:

Trade credit can be defined as delay of payment permitted by the creditor or supplier of raw materials, consumables etc. against the goods purchased from him. Trade Credit is a major source of working capital finance for most business whether small or big.