Question

12. Sources of short-term financing Short-term credit, or short-term financing, is any liability that is scheduled for repayment within one year. Among the sources of short-term funds are banks, suppliers, securities firms, and insurance companies. Their securities (or obligations) can take the form of bank loans, trade credit, commercial paper, and accruals. Some types of short-term financing are easier to obtain and manage than others. Financial managers should consider the costs of the various sources of financing as part of a business's cash management strategy. The following statement refers to a source of short-term credit. Select the best term to complete the following sentence: The credit that is created when a supplier sells goods and services on an account with extended payment terms is called Ursu Fabricators Inc. is a manufacturing company. Ursu's financial managers use many sources of financing for the company's annual borrowings, which exceed $100 million. Ursu's credit rating is excellent. At the moment, the managers are looking to fund a $5 million payroll by issuing a note with a 30-day maturity. What type of financing is this? Accrual Bank loans Commercial paper Trade credit

Drop-down options: (accruals, trade credit, commercial paper, bank loans)

Answer 1

1: trade credit

Trade credit is a form of short-term finance which refers to credit created when goods are sold without cash.

2: commercial paper

Commercial paper is a short term debt issued by a corporation. It is unsecured in nature and meant for short-term financing. Accruals refer to outstanding expenses. Bank loan refers to money borrowed from the bank. Trade credit refers to credit taken at the time of purchase of goods.