Investment and Short-Term Financing Flashcards
7 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment and Short-Term Financing flashcards as text
A company's investment policy statement should primarily address which of the following?
Answer: Permitted instruments, maturity limits, and credit quality thresholds
An IPS establishes safety, liquidity, and yield objectives along with permitted investment types, credit ratings, and maturity constraints.
Banker's acceptances are most commonly used to finance which type of transaction?
Answer: International trade transactions
Banker's acceptances originated as time drafts used in international trade, with the accepting bank guaranteeing payment.
Which measure best captures the total return on a money market instrument, accounting for compounding when reinvested?
Answer: Effective annual yield
The effective annual yield (EAY) compounds the periodic return to reflect true annualized earnings including reinvestment.
When a company draws on a line of credit that requires a compensating balance, the effective borrowing cost:
Answer: Is higher than the stated interest rate
Because a portion of the borrowing must remain on deposit and earns little or no interest, the effective rate exceeds the stated rate.
An asset-backed commercial paper (ABCP) conduit differs from traditional commercial paper primarily because:
Answer: Its repayment is supported by a pool of underlying financial assets
ABCP is issued by a special-purpose vehicle backed by receivables or other financial assets rather than the issuer's general credit.
Which short-term financing strategy uses the company's own accounts receivable as collateral?
Answer: Accounts receivable pledging
Accounts receivable pledging assigns receivables as collateral for a loan, while the company retains collection responsibility.
The primary advantage of issuing commercial paper over drawing on a bank line of credit is typically:
Answer: Commercial paper usually has lower borrowing costs for highly rated issuers
High-grade issuers can access commercial paper markets at rates below bank prime, reducing borrowing costs.