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Free CMA Exam Braindumps (page: 132)

Page 132 of 336
PDF with 1336 Questions
View Related Case Study

The prime lending rate of commercial banks is an announced rate and is often understated from the viewpoint of even the most credit-worthy firms. Which one of the following requirements always results in a higher effective interest rate?

  1. A floating rate for the loan period
  2. A covenant that restricts the issuance of any new unsecured bonds during the existence of the loan.
  3. The imposition of a compensating balance with an absolute minimum that cannot be met by current transaction balances.
  4. The absence of a charge for any unused portion in the line of credit.

Answer(s): C

Explanation:

When a firm borrows money from the bank, it is often required to keep a certain percentage of the funds in the bank at all times. These compensating balances effectively increase the rate of interest on the money borrowed from the bank.



View Related Case Study

The prime rate is the

  1. Size of the commitment fee on a commercial bank loan.
  2. Effective coat of a commercial bank loan.
  3. Effective cost of commercial paper
  4. Pate charged on business loans to borrowers with high credit ratings.

Answer(s): D

Explanation:

The prime interest rate is the rate charged by commercial banks to their best (the largest and financially strongest) business customers. It is traditionally the lowest rate charged by banks. However, in recent years, banks have been making loans at still lower rates in response to competition from the commercial paper market.



View Related Case Study

Short-term, unsecured promissory notes issued by large firms are known as

  1. Agency securities.
  2. Bankers' acceptances.
  3. Commercial paper.
  4. Repurchase agreements.

Answer(s): C

Explanation:

Commercial paper is the term for the short-term (typically less than 9 months), unsecured, large denomination (often over $100,000) promissory notes issued by large, credit-worthy companies to other companies and institutional investors. In many instances, the maturity date is only a few days after issuance.



View Related Case Study

A small retail business would most likely finance its merchandise inventory with

  1. Commercial paper
  2. A terminal warehouse receipt loan.
  3. A line of credit.
  4. A chattel mortgage.

Answer(s): C

Explanation:

A small retail store would not have access to major capital markets. In fact, the only options available, outside of owner financing, are bank loans and a line of credit from suppliers. It is this latter alternative that is most often used because it permits the store to finance inventories for 30 to 60 days without incurring interest cost. A line of credit is an arrangement between a bank and a borrower in which the bank commits itself to lend up to a certain maximum amount to the borrower in a given period.



Page 132 of 336



Post your Comments and Discuss Financial CMA exam with other Community members:

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Still the test is under process
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