1 . A credit policy includes each of the following except:
A. credit standards
B. the company’s approach to credit investigation and corrections
C.whether a “just in time”system will be used
D. credit terms

2. Cash application should be done as quickly as possible by a seller because
A. it may prevent the bankruptcy of a customer
B. it involves shipping to the most profitable customer accounts
C. it enables customers to order more merchandise
D. it usually results in the seller being given a higher Dun & Bradstreet rating
E. none of the above

3. The PRIMARY reason given by those companies that impose credit limits is:
A. to control risk exposure
B. because of customer’s financial position
C. because of experience with customer
D. to improve the supplier’s perceived status by signaling selectivity

4. The number of days inventory held method and the balance fraction method
A. Provide the same conclusion with regard to inventory usage
B. Provide conflicting conclusions with regard to inventory usage
C. Provide the same conclusion with regard to inventory purchases
D. Provide conflicting conclusions with regard to inventory purchases

5. Which of the following is the order of evolution for resource requirements planning systems?

6. The general manager of a steel mill is pretty sure that the demand for and price of steel will be increasing sharply within the next six months due to a sudden boom in the housing market. If he increases current production and inventories corresponding to his belief, his action would be indicative of the _____________ motive for holding inventory.
A. Speculative
B. Precautionary
C. transaction
D. just-in-time

7. The move from an aggressive financing strategy to a moderate financing strategy should __________ a company’s liquidity by increasing the use of ________-term funds.
A. Increase, long
B. Increase, short
C. Decrease, long
D. Decrease, short

8. Security A is a fully taxable security that earns 5% annually. Security B is a tax-exempt municipal security. If a short-term investment manager uses a tax rate of 33%, what yield must security B earn such that the investment manager would be indifferent between securities A and B?
A. 2.5%
B. 3.35%
C. 4.67%
D. 7.46%

9. The ABC Company paid total interest of $2,000 on its line of credit borrowings for the year. ABC paid a $100 commitment fee on an average borrowing of $20,000 for the year. What is ABC’s annual effective rate of interest?
A. 9.95%

10. The effective cost of commercial paper is 6%, and the effective cost of a bank credit line is also 6%. All other considerations aside, the treasurer should:
A. finance with the commercial paper
B. finance with the bank credit line
C. be indifferent to the commercial paper or the credit line
D. wait for interest rates to change before making a decision

11. The coupon-equivalent yield is _______ than the discount yield of a 91-day Treasury bill with the gap ______ at higher interest rates.
A. Lower, widening
B. Greater, narrowing
C. Greater, widening
D. Lower, narrowing

12. The financial motive for extending trade credit posits that credit sellers:
A. have a non-price marketing advantage
B. charge a higher selling price
C. charge higher service charges applied to credit customers
D. have lower operating costs

13. A credit analyst is going over a Dun & Bradstreet report on a potential new customer. The credit history shows that the company paid two of its many suppliers late within the last six months. The least likely conclusion to be drawn is:
A. that the company would be a poor credit risk.
B. that the company is a good credit risk.
C. that the company may have disputes with its supplier(s).
D. that the company is experiencing a cash crisis

14. The most liquid security, and the one that has the least default risk in the world, is the:
A. 91-day Treasury bill
B. 3-month CD
C. loan participations
D. commercial paper

15. Supply chain management systems are as:
A. just-in-time inventory management systems
B. distribution
C. logistics
D. ‘a’ and ‘b’
E. ‘b’ and ‘c’

16. The major motives for trade credit extension include all of the following except:
A. pricing motive
B. operating motive
C. contracting cost motive
D. production motive

17. Borque Manufacturing forecasts that its production will require 500,000 tons of bauxite over its planning period. Demand for Torque’s products is stable over time. Ordering costs amount to an average of $20.00 per order. Holding costs are estimated at $1.25per ton of bauxite. EOQ for Torque is
A. 2,200 tons
B. 6,000,000 tons
C. 4,000 tons
D. 5.6tons

18. The aggressive financing strategy:
A. Is basically a maturity matching strategy
B. Heavily relies on short-term funds
C. Uses only long-term funds
D. ‘a’ and ‘b’
E. ‘a’ and ‘c’.

19. Which of the following are advantages that credit sellers have over banks
A. Information advantage
B. Control advantage
C. Salvage value advantage
D. ‘a’ and ‘b’
E. all of the above

20. Mortgage backed government agency securities are NOT suited to the short-term investor because they
A. have high interest rate risk
B. have uneven cash flows
C. do not permit prepayment of the mortgages backing them
D. all the above are correct
E. ‘a’ and ‘b’

21. The manufacturer of bicycles has just implemented a new sales forecasting model which is much more accurate than the “guesstimates” used in the past. The company should consequently
A. reduce finished goods inventories
B. increase finished goods inventories
C. totally eliminate finished goods inventories
D. not change its finished goods inventories

22. An automobile manufacturer has just decided to outsource windshields instead of making them itself. Using an outside supplier under the just-in-time approach will have what immediate effect on the manufacturer’s inventory management?
A. reduce finished goods inventories
B. reduce raw material inventories
C. reduce work in process inventories
D. both a and b
E. both b and c

23. The primary determinants of credit limits include the following:
A. Customer’s requirements for the firm’s products
B. Customer’s recent payment history
C. Customer’s ability to pay its debts
D. ‘b’ and ‘c’
E. all of the above
24. “Estimated Financial Strength” in the Dun & Bradstreet ratings system refers to
A. net worth
B. total assets
C. total debt
D. total debt less cash and marketable securities
E. none of the above

25. The valuation approach to making short-term financial decisions uses discounting to assess shareholder wealth effects. Using a cash flow timeline to assess various inventory purchase quantities is premised on an objective which should lead to enhanced shareholder wealth, which is
A. maximizing return on inventory investment
B. minimizing the sum of inventory holding and ordering costs
C. minimizing the present value cost of inventory-related cash flows
D. maximizing the gross margin return on inventory investment
E. none of the above

26. The minimum level of ongoing inventory and receivables is what is referred to as ______________ current assets.
A. transitory
B. modifiable
C. discretionary
D. permanent

27. Which of the following is not one of the advantages of money market mutual funds?
A. enhanced liquidity
B. greater flexibility
C. higher yields
D. exemption from state and local income taxes

28. MNO, Inc. paid a total interest of $3,000 on its line of credit borrowings for the year. MNO’s average annual borrowings are $30,000. The bank retains $6,000 as a compensating balance. What is the MNO’s annual effective rate of interest?
A. 8.33%
B. 10.00%
C. 12.50%
D. 30.00%

29. A company may wish to add a safety stock if it faces uncertain demand. The inventory analyst should modify the following in light of the safety stock:
A. recompute the average inventory by adding the safety stock amount to the present average inventory balance
B. recompute the reorder point by adding the safety stock to the present reorder point
C. recompute EOQ by adding the safety stock to period demand to arrive at a new usage rate
D. both a and b
E. both b and c

30. An investor trying to gain an understanding of what determines commercial paper rates should focus on:
A. only the commercial paper market
B. the T-bill market
C. the CD rates
D. all of the above

31. Resiliency in a secondary market refers to
A. The existence of many large buyers of the instrument
B. the entrance of many new orders when the price is in temporary imbalance
C. the ability of the market to absorb a large quantity of a security without a major change in the D. instrument’s price
E. none of the above

32. Restrictive assumptions used to develop and use the basic EOQ model include all of the following except:
A. a non-constant order cost per order
B. a constant cost of holding each unit of inventory
C. a very accurate inventory demand forecast
D. a constant rate of inventory usage

33. Credit analyst John Adams is considering a $1,000 order from a new customer. The cost of filling the order is $950. John estimates collection costs are $20. The customer will pay in 60 days. If the appropriate cost of capital is 18%, what is the NPV of extending credit to the new customer?
A. $30.00
B. $26.87
C. $4.31
D. $1.84

34. The _______ is the rate charged depository institutions when they borrow reserves from the Fed; the _______ is the rate charged on reserve borrowings transacted between banks.
A. Discount rate, Fed funds rate
B. Fed funds rate, Discount rate
C. LIBOR, Fed funds rate
D. Fed funds rate, LIBOR

35. Implementing a supply chain management system necessitates eliminating delays, waste and bottlenecks in
A. the ordering process
B. the production process
C. the storage of finished goods
D. a and b
E. a, b, and c

36. Departments of local credit associations that provide information in the form of “Business Credit Reports”and other reports are called
A. credit reporting agencies
B. credit analysis agencies
C. credit information exchange bureaus
D. credit interchange bureaus
E. none of the above

37. Rule-based computerized applications of artificial intelligence to credit decision making are known as:
A. expert systems
B. just in time systems
C. portfolio analysis systems
D. credit extension systems

38. The money market is mainly a (an) ___________ market.
A. Wholesale
B. retail
C. brokered
D. offshore

39. The conservative financing strategy:
A. Is basically a maturity matching strategy
B. Uses only long-term funds
C. Uses only short-term funds
D. Uses a mix of short-term and long-term funds

40. Recent evidence shows that credit professionals work with
A. Marketing and sales personnel
B. Other finance personnel
C. Production personnel
D. ‘a’ and ‘b’
E. ‘b’ and ‘c’

41. The Brooks Company paid total interest of $3,000 on its line of credit borrowings for the year. Also, Brooks paid a $50 commitment fee and borrowed on average $30,000 for the year. Of the $30,000 average borrowings, $6,000 remained in the bank as a compensating balance. What is the Brook’s annual effective rate of interest?
B. 11.26%
C. 12.50%
D. 12.71%
E. 13.22%

42. Which of the following is NOT one of the primary ways a company can reduce its inventory investment?
A. expand sales
B. forecast sales more accurately
C. find more reliable suppliers
D. eliminate bottlenecks in the production process

43. Focusing on the present value of total inventory-related cash flows instead of the amount of inventory investment indicates the managers’ emphasis should be on
A. all inventory-related expenses
B. the inventory turnover ratio
C. the economic order quantity
D. none of the above

44. A company’s marketing manager is worried about ____________ stock-outs while production manger is concerned with _____________ stock-outs.
A. raw material, work-in-process
B. work-in-process, raw material
C. work-in-process, finished goods
D. finished goods, raw material and work-in-process

45. According to the assumptions upon which the EOQ model is based, total inventory costs _______________ with increases in the number of units ordered in each order.
A. first increases, then decreases
B. first decreases, then increases
C. increases, but at a slowing rate
D. decreases, but at a slowing rate

46. Which of the following is NOT correct?
Euro CP is not subject to several Securities and Exchange requirements
Euro CP issues generally do not require a back-up credit facility
Euro CP issues do not require name recognition as the rating agencies provide assessment of the default risk
Euro CP issues typically have longer maturities than domestic CP

47. A company is experiencing rapid build-up in its inventories and receivables. Likely cause(s) for this is (are): I. Sales are declining significantly II. Inefficient inventory and receivable management III. It has moved to just-in-time inventory management and shortened its credit period IV. Sales are growing rapidly
A. I and II
B. II and IV
C. I and III
D. III and IV

48. The differences between interest rates on US domestic Certificates of Deposit, Treasury bills, Commercial Paper, Eurodollar Certificates of Deposit, and Fed funds
A. tend to persist when rates are rising, but not when rates are falling
B. tend to persist when rates are falling, but not when rates are rising
C. are not persistent when rate are rising or falling- hence, these instruments are not close substitutes for the short-term investments manager
D. are persistent when rates are rising or falling – hence, these instruments are close substitutes for the short-term investments manager

49. Typically, moving from a conservative to a moderate or aggressive financing strategy will result in __________ profitability and in _________ solvency for the company.
A. Lesser, greater
B. greater, lesser
C. lesser, lesser
D. greater, greater
50. Inventory management is often viewed as the need to keep enough product on hand to avoid stock-outs, however the financial manager is concerned about:
A. having a larger assortment than any of the competitors
B. earning a reasonable rate of return on invested capital
C. ordering the largest quantities possible to maximize quantity discounts
D. maximizing the inventory