Trade Credit and Commercial Papers - Short-term Finance
Quiz covering Trade Credit and Commercial Papers as non-institutional sources of short-term business financing, including their merits, limitations, characteristics, and applications for working capital management.
Questions
Commercial papers provide _______ funds as compared to other sources.
- less
- more
- medium
- equal
A commercial paper is sold on an __________ basis and does not contain any restrictive conditions.
- Secured
- Unsecured
- Both a and b
- None of the above
Which one of the following is not a merit of commercial paper?
- A commercial paper is sold on an unsecured basis.
- As its is a freely transferable instrument, it has high liquidity.
- Only financially sound and highly rated firms can raise money through commercial papers.
- Companies can park their excess funds in commercial paper
The maturity period of a commercial paper usually ranges from ________.
- 20 to 40 days
- 60 to 90 days
- 120 to 365 days
- 90 to 364 days
Commercial paper may vary from _____ days to ______ days.
- 90, 150
- 90, 300
- 90, 364
- 90, 363
The amount raised by commercial paper is generally very _______.
- large
- small
- equal
- both (a) and (b)
As commercial paper is a freely transferable instrument, it has ________ liquidity.
- High
- Low
- Medium
- Equal
Commercial paper is an unsecured _________ note issued by the firm to raise funds for a short-term period.
- Promissory
- Debit
- Credit
- Sales
The regulation of commercial paper comes under the preview of the ____________.
- Central Bank
- Reserve Bank of India
- State Government
- Central Government
Commercial Paper emerged as a source of __________ finance in our country in the early _________.
- short-term, sixties
- short-term, seventies
- long-term, eighties
- short-term, nineties
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.
- limited
- unlimited
- equal
- higher
A commercial paper provides a __________ source of funds.
- Smaller
- Continuous
- Larger
- None of the above
Which of the following is a limitation of commercial paper?
- 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.
- A commercial paper is sold on an unsecured basis,
- As it is freely transferable instrument, it has high liquidity.
- It provides more funds compared to other sources.
The cost of commercial paper to the issuing firm is ________ than the cost of commercial bank loans.
- lower
- higher
- equal
- none of the above
Commercial paper is an __________ method of financing.
- personal
- impersonal
- nominal
- real
Commercial papers represent a new financial instrument issued for the purpose of _______________.
- Project financing
- Working capital
- Leasing of plant and equipment
- Import of capital goods
Identify the merit(s) of Trade credit.
- It reduces the capital requirement.
- It helps the business focus on core activities.
- It does not require any negotiation or formal agreement.
- All of the above
Likely disadvantage(s) of using trade credit include ___________.
- Loss of goodwill
- Higher prices of raw materials
- The opportunity cost of discount
- All of the above
Trade Credit is a major source of _____ finance for most business whether small or big.
- Receivables
- Fixed capital
- Working capital
- None of the above
Trade credit as a source of funds has certain limitations, which is/are ______________________.
- Only limited amount of funds can be generated through trade credit.
- It is generally a costly source of funds.
- Availability of easy and flexible trade credit facilities may induce a firm to indulge in over-trading.
- All of the above
Match the items of List-I with the items of List-II:
| List-I | List-II |
|---|---|
| (a) Trade credit and other payables that arise in the firm's day-to-day operations | (i) Maturity Financing |
| (b) Financing and asset needs over time | (ii) Factoring |
| (c) A tool for accelerating the collection from the customers | (iii) Spontaneous financing |
| (d) Seeking financial service to finance on its debtor's balances | (iv) Lockbox system |
- $(a) - (iv), (b) - (iii), (c) - (ii), (d) - (i)$
- $(a) - (iii), (b) - (ii), (c) - (iv), (d) - (i)$
- $(a) - (ii), (b) - (iv), (c) - (i), (d) - (iii)$
- $(a) - (i), (b) - (ii), (c) - (iii), (d) - (iv)$
Trade credit is commonly used by business organisations as a source of ___________ financing.
- Short-term
- Long-term
- Medium-term
- Both A and C
Trade credit is the credit extended by one _________ to another for the purchase of goods and services.
- Retailer
- Wholesaler
- Customer
- Trader
Trade credit is a convenient and continuous source of funds, which is one of the __________ of trade credit.
- Limitations
- Merits
- Functions
- Objectives
Trade credit is needed to promote the ________ of an organisation.
- Purchases
- Sales
- Drawings
- Capital