BUSI 320 REVIEW EXAM Questions and Answers
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Question 1.
to reduce short-term debt, and be available for future expansion of plant and
equipment.
Correct Answer: True If a company uses long term debt to finance part of short
term needs, it is likely
- the company will have adequate capital
- more interest will be paid on debt The term structure of interest rates refers to
yield curve As a rule,
during "tight money" periods:
- short term funds may be difficult to find
- rates on short term loans may become very high The term structure of interest
rates examines the
______. relationship between short-term and long-term interest rates An aggressive
firm utilizing short
term financing may be vulnerable to a credit crunch in which funds become scarce
True or False
Question: In designing working capital policy, the astute financial manager is
interested in not only
Question 2.
the term structure of interest rates but also the relative volatility and the historical
level of
short-term and long-term rates.
Correct Answer: True
Question 3.
How should the financial manager respond to fluctuating interest rates and
changing term
structures?
Correct Answer: - If interest rates are low, financial manager will try to lock in the
lower rates with long-term
borrowing.
- When interest rates are high and expected to decline, the financial manager would
generally
try to borrow short-term funds.
A risk of using short term funds to finance operations is
- if a tight money situation occurs, loans may be hard to obtain
- if a tight money situation occurs, interest rates may increase
Question 4.
True or False Question: A higher use of long term financing is the more
conservative financing approach
and can
Verified Solutions Latest Update
Question 1.
to reduce short-term debt, and be available for future expansion of plant and
equipment.
Correct Answer: True If a company uses long term debt to finance part of short
term needs, it is likely
- the company will have adequate capital
- more interest will be paid on debt The term structure of interest rates refers to
yield curve As a rule,
during "tight money" periods:
- short term funds may be difficult to find
- rates on short term loans may become very high The term structure of interest
rates examines the
______. relationship between short-term and long-term interest rates An aggressive
firm utilizing short
term financing may be vulnerable to a credit crunch in which funds become scarce
True or False
Question: In designing working capital policy, the astute financial manager is
interested in not only
Question 2.
the term structure of interest rates but also the relative volatility and the historical
level of
short-term and long-term rates.
Correct Answer: True
Question 3.
How should the financial manager respond to fluctuating interest rates and
changing term
structures?
Correct Answer: - If interest rates are low, financial manager will try to lock in the
lower rates with long-term
borrowing.
- When interest rates are high and expected to decline, the financial manager would
generally
try to borrow short-term funds.
A risk of using short term funds to finance operations is
- if a tight money situation occurs, loans may be hard to obtain
- if a tight money situation occurs, interest rates may increase
Question 4.
True or False Question: A higher use of long term financing is the more
conservative financing approach
and can
